Commodities - Energy

Crude Rallies with U.S. Equities

Crude Oil (WTI) - $85.07 // $0.08 // 0.09%

Commentary: Oil rose on Wednesday, buoyed by positive momentum across the financial markets. WTI added $0.67, or 0.79%, to settle at $84.99, while Brent rose by $2.14, or 2.11%, to settle at $103.78, a new 28-month closing high.

A strong batch of earnings and several M&A deals sent U.S. equities to multi-month highs of their own, giving a boost to crude. The goldilocks theme continues to dominate- a combination of robust growth and low interest rates. This has sent risk assets across the board steadily higher. From copper to gold to U.S. equities, we've seen multi-month or record highs being broken day after day.

Obviously, as crude oil as risen, so too has gasoline. Pump prices in the U.S. are now at the highest level for this time of year at $3.13/gallon (still below the record $4.11 set in the summer of 2008), while prices in China are at records as well. At some point, we can expect that this will begin to squeeze consumers, and consequently, the global economy. Record food prices may add additional pressure. Already we are seeing riots in parts of the developing world.

Technical Outlook: Prices have taken out major support at a rising trend line set from Augusts' swing low to pause at $84.41, the 38.2% Fibonacci retracement level. Back-to-back Star candlesticks at this juncture point to indecision and hint that a corrective upswing may be ahead, with resistance lining up at the 23.6% Fib level ($87.63).


Commodities - Metals

Gold Holds Recent Gains

Gold - $1377.28 // $2.85 // 0.21%

Commentary: Gold stalled after breaking out yesterday, settling at $1374.43, up $0.63, or 0.05%, on the day. Gold has managed to bounce back from its recent correction despite a steady decline in ETF holdings, as well as a steady increase in interest rate expectations. Buying interest from other segments of the market remains evident, and likely, these market participants are being encouraged by gold's long-term fundamentals rather than any short-term considerations. Given these circumstances, we would refrain from initiating any medium or longer-term short positions in the metal, opting to sit on the sidelines until a compelling long entry emerges.

Technical Outlook: Prices put in a Doji candlestick below resistance at $1379.81, the 61.8% Fibonacci retracement level, hinting the corrective upswing recorded from late January may have reached its apex. Renewed bearish momentum from here initially targets the 50% Fib at $1366.15.


Silver - $30.70 // $0.06 // 0.18%

Commentary: Silver fell $0.14, or 0.45%, to settle at $30.65, underperforming gold for a second day. Over the last 30 days, silver has exhibited volatility of 31% annualized, while the same measure for gold has averaged around 14%. Obviously, silver has been the more volatile metal, and we would expect this to continue for the foreseeable future.

The gold/silver rose slightly to 44.9, near the lowest since April 2006. (The gold/silver ratio measures the relative value/performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance)

Technical Outlook: Prices are testing resistance at the $31.00 figure, with early signs of negative RSI divergence hinting at turn lower is ahead. A break through initial rising trend line support (now at $30.58) exposes the 23.6% Fibonacci retracement level at $29.90.


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