Talking Points

  •  Crude Oil Outlook Clouded by Indecisive Risk Sentiment Trends
  •  Gold May Rise Further if US Jobs Data Stokes QE3 Expectations

WTI Crude Oil (NY Close): $94.07 // +1.56 // +1.69%

S&P 500 stock index futures are flat, pointing to a clouded outlook for risk appetite and - by extension - for crude oil as traders wait for the US employment report and the outcome of the G20 summit in Cannes to come across the wires before showing directional commitment. For the former, expectations call for the economy to add 95,000 jobs in October, marking a slowdown from the previous month and reinforcing disappointing ISM manufacturing- and service-sector readings seen earlier in the week. However, it remains uncertain whether the outcome will be negative for risk appetite given its ominous implications for global growth or positive in that it bolsters the case for additional stimulus from the Federal Reserve, particularly after Ben Bernanke reiterated that all options remain on the table.

For the latter, investors will be looking for guidance on international plans to snuff out the Euro Zone debt crisis after a tumultuous week of political posturing. Greece once again threatens to spoil the proceedings as it holds a confidence vote that may conceivably dismantle the administration of Prime Minister George Papandreou, creating a power vacuum at the worst possible time. However, coalition-building efforts are underway and if a unity government is successfully established, the confidence vote will be rendered essentially meaningless while stoking optimism in the ability of the administration in Athens to pass austerity measures and secure EU/IMF aid disbursement.

On the technical front, positioning is little changed from yesterday as prices continue to consolidate between $90.17 and $94.87, the 38.2% and 50% Fibonacci retracements, respectively. Early signs of negative RSI divergence hint a reversal lower is ahead, with a break below $90.17 exposing the 23.6% Fibonacci extension at $85.33.

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Spot Gold (NY Close): $1763.82 // +25.22 // +1.45%

Gold prices rose yesterday despite apparent moderation in Euro Zone meltdown risk after Greece cancelled its controversial national referendum vote on the bailout plan painstakingly crafted last week in Brussels. The most compelling explanation for the move seems to be the de-facto upward pressure from the drop in the US Dollar amid waning safe-haven demand.

Looking ahead, the landscape would look mildly better if the Greek issue finally saw some meaningful progress at the G20 summit but it is Spain and Italy that present the greatest challenge for policymakers, so traders holding gold for protection against an EU-driven meltdown across financial markets have no impetus to unwind their holdings for the time being. As for the employment report, a poor showing that stokes QE3 expectations is likely to prove supportive. Negative surprises on either front (or both) that drive the US Dollar higher may become headwinds however.

Technically, prices broke above support-turned-resistance at $1745.15 to challenge resistance at the top of a rising channel set from September's low, now at $1775.42. A break above this boundary exposes the $1800 figure, while $1745.15 has been recast as near-term support.

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Spot Silver (NY Close): $34.55 // +0.28 // +0.80%

Prices continue to tread water above the $33.00 figure, which closely coincides with the 38.2% Fibonacci retracement and 14.6% extension levels, as silver waits for clarity from macro-level event risk. Indeed, as with gold, hints at QE3 in the jobs data are likely to produce upward pressure but these forces may have to contend with a haven-seeking rise in the US Dollar. Near-term resistance remains at $35.12.

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