Talking Points

  • Crude Oil, Copper Aim to Correct Higher as Profit-Taking Boosts Risky Assets
  • Gold and Silver Have Scope to Bounce on Ebbing Haven Inflows into US Dollar

Commodities are on the upswing on European trade as profit-taking gently lifts risk assets following yesterday's aggressive selloff, overshadowing headwinds from a disappointing German IFO reading. Prices slumped over the preceding 24 hours as global economic growth fears swelled following signs of deepening weakness in China, the Eurozone and the United States against a backdrop of fading hopes for Federal Reserve stimulus. Ben Bernanke and company opted to withhold an expansion of QE at a meeting of the FOMC rate-setting committee earlier in the week. Moody's decision to downgrade the credit ratings of 15 of the world's largest banks reinforced the dour mood.

Looking ahead, S&P 500 stock index futures are on the upswing, hinting more of the same is ahead. Crude oil and copper prices are poised to follow shares higher while gold and silver find de-facto support as a recovery in sentiment saps haven demand for the US Dollar. The Dallas Fed's Manufacturing Survey headlines the calendar in US hours, with expectations calling for a flat reading in June after the gauge posted its largest decline since September 2011 in the prior month. May's New Home Sales report and the Chicago Fed's National Activity Index are also due to cross the wires.

Meanwhile, EU Finance Ministers continue a two-day meeting in Brussels. Coming on the heels of the G20 summit earlier this week where the region's officials faced heavy pressure from global leaders to step up debt crisis containment efforts, the sit-down may see the emergence of some preliminary policy ideas. Concrete initiatives are likely to wait until the EU leaders' summit next week, but traders will nonetheless continue to pay close attention to sideline commentary for early clues.

WTI Crude Oil (NY Close): $78.20 // -3.25 // -3.99%

Prices b broke below the 23.6% Fibonacci expansionat 81.07, exposing the 38.2% level at 77.34. Continued selling through this boundary targets the 50% expansion at 74.40. The 23.6% Fib has been recast as near-term resistance.

Crude_Oil_Gold_May_Rise_on_Profit-Taking_After_Sharp_Selloff_body_Picture_3.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1566.28 // -41.20 // -2.56%

Prices took out the 1600/oz figure and 38.2% Fibonacci retracement at 1582.10 to challenge interim support at 1554.73. A break below this boundary exposes the 1522.50-32.45 area. The 1582.10 boundary has been recast as near-term resistance.

Crude_Oil_Gold_May_Rise_on_Profit-Taking_After_Sharp_Selloff_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $26.89 // -1.27 // -4.51%

Prices are testing support at 26.75, the May 16 low, with a break downward exposing the major Triple Bottom at 26.05. Near-term resistance lines up at 27.84, the underside of formerly broken Flag chart formation that previously acted as support.

Crude_Oil_Gold_May_Rise_on_Profit-Taking_After_Sharp_Selloff_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.298 // -0.090 // -2.66%

Prices are testing support at 3.296, the 23.6% Fibonacci expansion. A break downward exposes Triple Bottom support at 3.250. Near-term resistance stands at 3.384, the 23.6% Fib retracement.

Crude_Oil_Gold_May_Rise_on_Profit-Taking_After_Sharp_Selloff_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