Talking Points

  •  Crude Oil Technical Setup Matches Bullish Cues in S&P 500 Futures
  •  Gold Retreats as Risk Appetite Recovers, Silver Outlook Unclear

WTI Crude Oil (NY Close): $85.38 // -0.34 // -0.40%

Crude is positioned to move higher amid a broad-based pickup in risk appetite, with S&P 500 stock index futures pointingfirmly higher ahead of the opening bell on Wall Street. Friday's US Retail Sales report and a superficially better than expected Japanese second-quarter GDP result are being tipped as the catalysts behind the broad-based bounce in risk appetite. However, the sales report came out in line with forecasts, so its best-in-four-months outcome was likely priced in already, while Japanese output still shrank for a second consecutive quarter to confirm a technical recession despite a slightly smaller decline than economists predicted. Rather, it seems deeply oversold conditionsare a more probable explanation.

The US Empire Manufacturing gauge of New York state industrial activity is on tap, with expectations pointing to the highest reading in three months. The European Central Bank will also announce the size of its periphery bond purchases since the policy meeting two weeks ago, giving an indication of the scheme's effectiveness as well as the central bank's conviction to carry it out. The news may prove to set the tone for sentiment at large and thereby for the WTI contract as well.

Prices put in a Long-Legged Doji candlestick above support at $84.72 - the 38.2% Fibonacci retracement of the rally from the March 2009 low - hinting a corrective bounce is ahead. Major rising channel support-turned-resistance lines up at $92.77. Shorter term, the break above $84.91 exposes $90.62.

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Spot Gold (NY Close): 1746.90 // -17.20 // -0.98%

The recovery in risk appetite alluded to in S&P 500 futures positioning seems likely to undermine gold prices again on Monday amid fading safe-haven demand. With that said, the macro-level headwinds facing the global recovery remain firmly in place, with output growth slowing across the major engines of performance while the EU debt fiasco remains unresolved and seems poised to get worse before it gets better. On balance, this hints the bounce in confidence is corrective with risk aversion likely to return, although as we discussed in our weekly forecast it remains to be seen whether that produces a renewed gold advance.

Prices finished last week squarely at the Fibonacci-implied extension target level, with oversold RSI studies hinting a pullback is becoming increasingly likely. Near-term, a bearish Evening Star candlestick below the $1800 figure marked a decline to resistance-turned-support at the top of a rising channel set from early July, with a break below 1727.15 exposing 1706.54. Alternatively, a bounce above 1747.76 exposes 1773.26.

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Spot Silver (NY Close): $39.10 // +0.38 // +0.97%

The technical and fundamental aspects of the silver outlook appear to be at odds. The pickup in risk appetite hints at downward pressure facing the cheaper precious metal, although the strength of its safe-haven credentials (as suggested by short-term inverse correlation studies with the S&P 500) is quite weak compared to that of gold. Meanwhile, on the technical front, prices broke above Andrew's Pitchfork resistance and may be forming a Head and Shoulders bottom above the $37.00 figure. Confirmation is needed on a close above $39.82, which would initially expose rising trend line support-turned-resistance now at $41.54 but also imply a measured upside target at $42.64. The outlook is thereby clouded, and we shall have to wait and see how things play out.

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