Crude Oil Falls for the Fifth Session, Gold Rally Continues

Crude Oil Falls for the Fifth Session

Commentary: Monday was a day of pause for crude oil and equity markets, as risk assets generally fluctuated between small gains and small losses. Oil would register its fifth loss in as many sessions, but clearly downside momentum is waning now that prices are notably below last week’s highs. Prices are currently near the USD 75.50 level, which is close to the midpoint of crude oil’s 11-month range, with prices below that having turned out to be attractive buying opportunities. U.S. economic data set to be released on Tuesday will include figures on Housing Starts (549K expected), Building Permits (586K expected), and Industrial Production (0.5% expected). Whether crude oil continues lower will be determined largely on the market’s assessment of these and other economic data points. Anything that suggests a double dip recession on the horizon will likely send risk asset prices lower, while better-than-expected data could catalyze a bounce in crude oil and equities alike.

Crude Oil Tests Levels Below $80

Crude Oil (WTI) - $80.12 // -$0.13 // -0.16%

 

Commentary: As has been the pattern in recent sessions, crude oil followed the movements in equity markets, declining sharply in the early morning, and then recovering after the Fed policy decision and statement were released. Crude oil declined as much as $2.28 to $79.20, but settled the day $1.23, or 1.51% lower. As we have stated in the past, it will be difficult for crude oil to break above the 11-month resistance area in the mid-$80’s in the near-term, given the abundant supply picture. Up next, traders will be looking to the DOE inventory report on Wednesday for guidance. As U.S. inventories are already at 10-year highs, a bearish report would likely weigh on the commodity.

 

Technical Outlook: Prices are testing support at $79.38 having been rejected at resistance below $82.55, the 138.2% Fibonacci extension of the 6/28-7/6 downswing. Support is reinforced by the close proximity of the bottom of a rising channel set from the low in May, now at $77.94. A break below that exposes the congestion region around the $75.00 figure.

Gold Looks to the US Dollar

 

Gold - $1203.55 // -$0.70 // -0.06%

 

Commentary: Gold again took its cues from the US Dollar in Tuesday’s session. Prices got as low as $1190.77 in the morning, but proceeded to finish higher by $2.90, or 0.24%, following the Fed announcement and subsequent dollar decline. Gold ETF holdings remain remarkably stable and about 1.2 million troy ounces below the record highs of mid-July. With Euro-area sovereign debt concerns seemingly in the rear-view mirror, expect gold to continue to move inversely to the US Dollar for now.

Technical Outlook: Prices remain wedged between the broken top of a falling channel set from the swing high in June (now acting as support) at $1188.80 and horizontal resistance at $1215.47. A move above that barrier will open the door for a challenge of the record high at $1265.30.

 

Silver - $18.30 // -$0.03 // -0.16%

 

Commentary: Silver staged a remarkable comeback on Tuesday, rebounding $0.38 off session lows. The metal settled $0.01, or 0.05% lower on the day. The gold/silver ratio ticked slightly higher to 65.77, but remains well within the 2010 range of 60 to 71.

 

Technical Outlook: Unchanged from yesterday: “Prices have stalled at resistance marked by the upper boundary of a descending triangle chart formation above support at $17.45 that has contained prices for much of the year (now at $18.51). A break below initial support at $18.17 opens the door for a move to test the $18.00 figure and another run toward $17.45. Alternatively, renewed bullish momentum would expose the $19.00 mark.”

Crude Oil May Consolidate

Crude Oil (WTI) $81.05 // +$0.35 // +0.43%

 

Commentary: Last week saw crude oil advance over the $80 level for the first time since May. Traders took profits on Friday, however, after U.S. nonfarm payroll data came out weaker than expected. This week is looking rather light on the U.S. economic front. The FOMC will make its rate decision on Tuesday, but no significant actions are expected from the central bank. Initial jobless claims on Thursday always bear watching, and retail sales on Friday are notable as well. Traders will be looking to the DOE inventory report on Wednesday to see if U.S. inventories, which are already at 10-year highs, continue to swiftly move higher. With oil prices closer to the top of an 11-month range than the bottom, there is ample opportunity for prices to slip this week. We are expecting a period of consolidation at the very least. 

 

Technical Outlook: Prices have turned lower from resistance at $82.55, the 138.2% Fibonacci extension of the 6/28-7/6 downswing. Initial support lines up at $79.38, a barrier reinforced by the close proximity of the bottom of a rising channel set from the low in May.