Talking Points

  •  Crude Oil May Deviate from Sentiment Trends as US-Iran Tensions Rise
  •  Gold Looks for US Dollar Reaction to Euro Crisis, US Data to Guide Prices

WTI Crude Oil (NY Close): $102.96 // +4.13 // +4.18%

Crude oil prices followed shares higher as expected yesterday on the back of a broad-based recovery in risk appetite. This time around, a pullback appears likely as S&P 500 stock index futures trade lower in early European trade, suggesting sentiment is souring anew. Investors' anxiety comes as Eurozone debt crisis fears creep back into focus ahead of a pair bond auctions in Germany and Portugal. Later in the day, the spotlight will shift to US Factory Orders figures, which may prove to counter-balance selling pressure as expectations of the strongest increase since July.

Geopolitical jitters continue to provide the backdrop and may see crude decouple from sentiment trends amid continued jostling between the US and Iran, which traders fear may disrupt supply flows through the Strait of Hormuz that serves as the shipping route for close to 40 percent of seaborne crude. The latest development saw the Pentagon rebuff Iranian warnings not to return an aircraft carrier into the Persian Gulf after it left last week, saying regularly scheduled movements - including through the Strait of Hormuz - will continue as they have for decades.

On the technical front, prices rebounded as we suggested last weekafter putting in a Hammer candlestick above resistance-turned-support at thetop of a falling channel set from mid-November. The bulls took out interim resistance at challenge the November 17 high at 103.35, with a break above this barrier marking a material shift in tone from an outright bearish bias toward a more neutral one. Continued gains above resistance expose 106.05. Near-term support lines up at 101.28.


Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1603.50 // +37.23 // +2.38%

Gold soared yesterday despite a relatively encouraging set of FOMC meeting minutes - which could have been expected to weigh on the metal given their implications fading gold demand as QE3 expectations are unwound - as the US Dollar posted the largest decline in two weeks and offered a de-facto boost to the yellow metal.

Looking ahead, the greenback's trajectory is likely to remain the key transmission mechanism of risk sentiment trends, with the focus turning to the aforementioned Eurozone bond auctions and the US Factory Orders release. Tension in the Middle East is another component to consider: gold spiked higher along with crude in early European hours after the US brushed off Iranian saber-rattling, so further escalation may prove to be a supportive factor.

Sizing up the chart setup, prices recovered as we discussed last week after showing a Hammer candlestick above support at 1532.45, the September 26 wick low. The bulls are now testing support-turned-resistance at the bottom of a falling channel set from early November, with a break above this boundary exposing 1677.05. Near-term support lines up at 1573.67.


Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $29.67 // +1.81 // +6.49%

Silver continues to move in line with its more expensive counterpart, rising on the back of US Dollar selling yesterday and looking to the greenback for additional direction cues in the hours ahead as the benchmark currency balances the influence of Eurozone debt jitters with improving US economic data.

Prices broke resistance at 28.41 after putting in a Hammer candlestick at the bottom of a falling channel set from early November and are now testing the next barrier at 29.79. This hurdle is reinforced by the channel top, now at 30.50, with a break above that exposing 31.11. The 28.41 has been recast as near-term support.


Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for