Talking Points

  •  Crude Oil Rebound Hinted as ECB Steps into Bond Markets
  •  Gold Has Scope to Rise as Risk Rebound Weighs on US Dollar

WTI Crude Oil (NY Close): $99.37 // +1.23 // +1.25%

European shares are pushing higher, the Euro is on the upswing, and S&P 500 stock index futures have erased overnight losses to stand in positive territory, hinting crude oil prices are poised to advance as Wall Street comes online. The surge in optimism came as the average yield on benchmark 10-year bonds of the so-called PIIGS - the Eurozone countries most vulnerable to the sovereign debt crisis - dropped to the lowest level in six days, withnewswires attributing the move to intervention from the European Central Bank, which is reportedly intervening into bond markets to prop up troubled countries' debt.

While the move offers a temporary respite from sovereign stress, the improvement is unlikely to prove lasting unless the ECB gives a firm commitment to act as a lender of last resort and backstop the likes of Italy and Spain, a move that has been aggressively opposed from within the central bank up to now. Still, a short-term corrective recovery in sentiment after recent selling would be reasonable at this point, taking the WTI contract along for the ride. On the data front, US CPI and Industrial Production figures are in the spotlight.

Turning to the chart setup, prices put in a bearish Dark Cloud Cover candlestick pattern below resistance at $99.86, the 61.8% Fibonacci retracement, hinting a move lower is ahead. Negative RSI divergence bolsters the case for a downside scenario. A break below rising channel support at $96.53 exposes the 50% Fib at $95.25. Alternatively, a push above immediate resistance exposes the channel top, now at $105.26.

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Spot Gold (NY Close): $1780.82 // +0.40 // +0.02%

The US Dollar is trading flat having erased overnight gains as safe haven demand falters in the wake of the ECB's intervention into Eurozone bond markets, offering de-facto support to gold prices. Indeed, if the recovery in risk appetite now being telegraphed in S&P 500 index futures proves durable, the yellow metal is likely to follow.

With that in mind, the technical landscape continues to broadly favor the downside. Prices completed a bearish Evening Star candlestick formation near the $1800.00 figure and are now testing below rising channel support at $1769.61. A break below this barrier initially exposes the 38.2% Fibonacci retracement level at $1746.26. On balance, this hints that any advance that falls short of overtaking resistance at $1809.62, the 61.8% Fib, is likely to prove corrective.

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Spot Silver (NY Close): $34.54 // +0.30 // +0.88%

Like gold, the trajectory of the US Dollar appears most important in the near term, hinting silver may edge higher as the greenback retreats amid a recovery in risk appetite. The technical setup has been little changed since late October. Prices put in a bearish Evening Star candlestick pattern below resistance at $35.12, the 50% Fibonacci retracement level, sinking once again toward critical support at the $33.00 figure. A break below this juncture exposes the 23.6% Fib extension level at $31.39. Alternatively, a push through immediate resistance exposes the 61.8% level at $37.25.

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