Crude Oil, Gold May Rise as Markets Settle After Spain Bailout Volatility

Talking Points

• Crude Oil, Copper May Rise as Sentiment Trends Settle After Spain Bailout Volatility
• Gold and Silver Could Drift Higher on Moderating Safe-Haven Flows into US Dollar

Commodity prices are in negative territory overnight, mirroring a selloff across Asian stock exchanges. The MSCI Asia Pacific regional benchmark equity index fell 1 percent amid skepticism about the ability of Spain's bank bailout deal struck with Eurozone finance ministers over the weekend to calm debt crisis fears gripping the region. Yields on benchmark 10-year Spanish bonds jumped to 648.7bps yesterday, marking the highest level in over a week and showing investors were not sold on the country's sovereign stability profile despite the aid package. The proximity of Greece's second attempt at electing a coherent government due June 17 - where the ailing country's Eurozone membership seems to hang in the balance - likely reinforced the dour mood.

Looking ahead, S&P 500 stock index futures are pointing higher to suggest risk aversion may moderate as markets return toward a neutral setting after Monday's seesaw volatility and await the next driving catalyst for price action. This opens the door for sentiment-geared crude oil and copper prices to correct higher while gold and silver find support amid easing safe-haven demand for the US Dollar. The bi-annual ECB Financial Stability Review looks to be the most significant bit of event risk on the economic calendar. While traders are unlikely to be particularly surprised by the risks that the central bank will probably identify, the intense focus on Eurozone-linked instability can nonetheless make for a sharp reaction from price action in the absence of other major drivers.

WTI Crude Oil (NY Close): $84.10 // -0.72 // -0.85%

Prices took out support at 83.30 the 14.6% Fibonacci expansion, to challenge the 23.6% barrier at 81.07. A break beneath this boundary targets the 80.00 figure and the 38.2% Fib at 77.33. The 14.6% expansion has been recast as near-term resistance.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1596.77 // +3.32 // +0.21%

Prices remain wedged between 1599.17 and 1582.10, the 50% and 38.2% Fibonacci retracement levels, respectively. A break higher exposes the 61.8% Fib at 1616.23, a barrier reinforced by a falling trend line in place since early March. Alternatively, a push downward through support targets 1554.73, followed by the 1522.50-1532.45 area.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.57 // +0.07 // +0.25%

Prices are treading water below resistance at 28.70. A break higher exposes 29.71. The overall structure appears to be showing a Flag chart formation, a setup indicative of bearish continuation. Confirmation is required on a daily close below the pattern's bottom - now at 28.12 - which would expose 27.06 as the next downside objective.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.344 // +0.058 // +1.77%

Prices continue to hover below resistance at the top of a falling channel set from the May 1 swing high, now at 3.334. A break higher initially exposes the 76.4% Fibonacci retracement at 3.426. Double bottom support lines up at 3.250, with a break below that targeting the 123.6% Fib extension at 3.080.

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