Talking Points

  • Crude Oil, Copper May Reverse Lower as Bernanke Disappoints QE3 Hopes
  • Gold and Silver at Risk on US Dollar Rebound, Ebbing Value Haven Demand

Commodity prices are on the upswing as all eyes turn to Fed Chairman Ben Bernanke and his semiannual Congressional testimony. An updated set of 2012 global growth expectations from the IMF released yesterday underscored once again that the US is seen accelerating while other key major output-driving countries slow (as in China) or outright contract (as in the Eurozone). This pins global recovery hopes on the ability of the US to offset headwinds from elsewhere, with additional support from the Fed understandably seen as conducive.

The move higher in sentiment-linked assetsahead of the testimony reflects hopeful expectations for dovish rhetoric, opening the door for a disappointment.Indeed, the Fed is almost certainly not oblivious to the limitations of additional QE given bond yields are already within a hair of record lows and real rates are in negative territory out to the 10-year maturity. With that in mind, Bernanke will probably deliver a familiar mantra, leaving the door open to additional accommodation to mollify jittery markets just enough to avoid pandemonium without actually expanding the balance sheet and remain mum on specifics.

While this would amount to little more than a restatement of the status quo, it may nonetheless prove to weigh on risk appetite given high-flying expectations. That bodes ill for growth-geared commodities including crude oil and copper. It likewise promises to put downward pressure on gold and silver as the US Dollar gains amid renewed risk aversion while store-of-value demand for the precious metals dissipates.

WTI Crude Oil (NY Close): $88.43 // +1.33 // +1.53%

Prices continue to trade sideways above support at 84.14, the 23.6% Fibonacci retracement. Near-term resistance is at 88.40, the 38.2% level, with a break above that exposing the 90.00 figure and the 50% Fib at 91.84. Alternatively, a breach of support targets the 81.19-52 area marked by the June 4 low and the 14.6% retracement.

Crude_Oil_Gold_Vulnerable_as_Bernanke_Disappoints_on_QE3_Hopes_body_Picture_3.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1589.38 // -0.30 // -0.02%

Prices broke back above 1575.81, the 38.2%Fibonacci expansion, exposing the 23.6% level sitting squarely at the 1600/oz figure once again. A falling trend line set from late March, now at 1612.47, compounds resistance. A break above the latter boundary initially exposes the July 3 high at 1624.81. The 1575.81 level has been recast as near-term support, with a turn back below that targeting the 50% Fib at 1555.83.

Crude_Oil_Gold_Vulnerable_as_Bernanke_Disappoints_on_QE3_Hopes_body_Picture_4.png,

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $27.34 // +0.01 // +0.04%

Prices continue to tread water above support is at 26.75. A break below that exposes the multi-month triple bottom at 26.05. Trend line resistance is now at 27.81, with a breach above that exposing the underside of a previously broken Flag formation (currently at 28.84).

Crude_Oil_Gold_Vulnerable_as_Bernanke_Disappoints_on_QE3_Hopes_body_Picture_5.png,

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.486 // -0.018 // -0.51%

Prices took out resistance at 3.445, the 14.6% Fibonacci expansion, exposing upside barriers at 3.535 and 3.618. The 3.445 level has been recast as near-term support, with a break below that targeting the 23.6% Fib at 3.378.

Crude_Oil_Gold_Vulnerable_as_Bernanke_Disappoints_on_QE3_Hopes_body_Picture_6.png,

Daily Chart - Created Using FXCM Marketscope 2.0

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

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