Gold, Crude Oil to Judge ISM and Fed Comments in Terms of QE3 Bets

Talking Points

•  Crude Oil, Copper to Follow Stocks as ISM Data, Fed-speak Shape Risk Trends
•  Gold and Silver Reflect Inflation-Hedge Demand as QE3 Expectations Evolve

Commodities look to the US economic calendar for direction, with the spotlight on the US ISM Manufacturing gauge. Forecasts call for a mild slowdown in April that keeps the modest uptrend carved out from July of last year intact (a print below 52.6 would be needed to snap the trend, and a 53.0 result is expected).

With the likelihood of Fed QE3 still broadly in focus across financial markets, a soft reading may counter-intuitively boost risk appetite on rising stimulus hopes. Crude oil and copper prices remain closely correlated with the S&P 500 and so would be expected to follow shares higher in this scenario while gold and silver would find support on rising US Dollar dilution concerns.

Investors are likely to evaluate a busy docket of Fed officials' commentary along the same lines. Scheduled remarks from regional branch Presidents Kocherlakota, Williams, Evans, Lockhart and Plosser are due to cross the wires. The preliminary set of weekly oil inventories figures from API rounds out the day's event risk.

WTI Crude Oil (NY Close): $104.87 // -0.06 // -0.06%

Prices put in a Hanging Man candlestick below resistance at 104.90, a former support level, to hint that a pullback may be ahead. A turn lower from here sees initial support at 102.20. Alternatively, a breakout higher targets trend line resistance now at 105.91.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1664.75 // +2.00 // +0.12%

Prices took out the top of a falling channel set from early March, with the bulls now aiming to challenge resistance at 1680.00 and 1696.88 marked by key swing highs set on April 12 and March 27. The channel top, now at 1656.74, has been recast as near-term support.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $31.02 // -0.24 // -0.78%

Prices are testing resistance at 31.36, with a break higher exposing the top of a falling channel set from early March (now at 31.96). Near-term channel bottom support is now at 29.64.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.830 // +0.004 // +0.10%

Prices are retesting above former support at a rising trend line set from mid-February, with a break higher exposing the next upside barrier just below the 4.000 figure in the 3.933-3.988 area. For now, initial support lines up at 3.713.

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