Talking Points

  • Crude Oil May Decline as Firmer Philly Fed Print Dents QE3 Bets
  • Gold Vulnerable if US Data Undermines Inflation-Hedge Demand

Commodity prices are showing mixed cues in European trade, with traders now looking ahead to the US economic calendar in search for direction cues. The spotlight is on the Philadelphia Fed manufacturing activity gauge. Economists expect a narrow improvement in August, with the index rising to four-month high at -5.0 from a print at -12.9 in the prior month.

Directional implications of the outcome appear clouded. A disappointing outcome on yesterday's analogous Empire Manufacturing metric helped crude oil and gold higher as the reading presumably stoked Fed QE3 expectations. Performance was uneven across the commodity price spectrum however, with copper and silver effectively flat on the day despite the former's sensitivity to risk trends and the latter's anti-fiat properties.

With this in mind, an improvement on the Philadelphia Fed reading could be expected to weigh against stimulus bets, undermining sentiment and forcing crude oil lower while eroding support for gold as inflation hedge demand moderates. Copper and silver would typically follow suit under similar circumstances, but follow-through in the low-volume late summer lull has clearly proven lacking in recent days.

WTI Crude Oil (NY Close): $94.33 // +0.90 // +0.96%

Prices took out resistance at 93.90, the 50% Fibonacci retracement, exposing the next upside barrier at 95.41 marked by the February 2 swing low. A breach of that boundary clears the way for a challenge of the 61.8% Fib at 97.82. The 93.90 has been recast support, with a reversal back below that aiming for 92.51.

"Crude_Oil_Gold_May_Pull_Back_if_Philly_Fed_Print_Undermines_QE3_Bets_body_Picture_3.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1603.10 // +4.05 // +0.25%

Prices continue to drift below resistance in the 1620.45-35.70 congestion area. Near-term support remains at a rising trend line support set from late June, now at 1597.07. A break below this boundary exposes a longer-term trend line established from the May 16 bottom, currently at 1576.43. Alternatively, a push above resistance initially targets 1677.79, the May 1 swing high.

"Crude_Oil_Gold_May_Pull_Back_if_Philly_Fed_Print_Undermines_QE3_Bets_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $27.83 // +0.01 // +0.04%

Prices continue to stall above support at 27.68. A break downward initially exposes a rising trend line set from the June 28 low, now at 27.30. Near-term resistance remains at 28.44, with a breach above that opening the door for an advance to challenge 29.42.

"Crude_Oil_Gold_May_Pull_Back_if_Philly_Fed_Print_Undermines_QE3_Bets_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.350 // -0.010 // -0.30%

Prices broke through support at 3.387 after recoiling from resistance at a falling trend line set from the April 3 high. Sellers are now testing support in 3.000-332 area, with a break below that exposing the June 4 low at 3.237. The 3.387 level has been recast as near-term resistance. A push back above that targets trend line resistance at 3.423.

"Crude_Oil_Gold_May_Pull_Back_if_Philly_Fed_Print_Undermines_QE3_Bets_body_Picture_6.png,

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com