Fundamental Forces

Oil Looks to Jobless Claims, Earnings. Gold Outlook Darkens

Commodities – Energy

Oil Looks to US Jobless Claims, Retailers’ Earnings Reports to Set Direction

Crude Oil (WTI)       $78.89       -$0.39       -0.49%
Crude continues to consolidate in the upper portion of the now-familiar $76.82-80.46 range, with near-term support seen at $78.28. The fundamental landscape offers plenty of catalysts. US jobless claims are set to decline once more, offering hope of stabilization in the world’s largest oil-consuming nation. Meanwhile, third-quarter earnings reports from Dow Jones component and bargain retailing leader Wal-Mart Inc as well as Kohl Corp, a middle-income department store operator, will help guide attitudes about the health of the world’s largest consumer base and amid fears that the recovery of recent months cannot be sustained after stimulus measures are withdrawn. To that effect, the outcome of these reports is likely to be instrumental in shaping the trajectory of risk appetite and with them the path of crude prices as well.

Commodities – Metals

Gold Technical Outlook Darkens Further, Silver Diverging

Gold       $1116.20       -$1.21       -0.11%
Yesterday, we wrote that “gold prices look positioned to reverse lower from record highs, with technical positioning revealing a Rising Wedge bearish reversal chart formation bolstered by negative divergence on the RSI momentum gauge.” While we do not have confirmation of a breakout yet, the current downturn seems to hint that we are heading towards validating the Wedge scenario. A push lower initially targets $1097.72. As with oil, the fundamental factors in play are US labor market figures and retailers’ earnings reports.

Silver       $17.52       -$0.08        -0.45%
Silver continues to consolidate, oscillating between $17.25 and $17.77. Indeed, prices seem to be behaving rather more like oil and the US Dollar Index (both showing consolidation patterns) than its more expensive counterpart, which has continued to take out record highs over recent days. Silver is clearly a less-fashionable investment vehicle for the inflation-hedging crowd that has pushed the gold higher on expectations that central banks’ extraordinarily easy policy stance will create runaway price growth. However, the ‘great re-inflation’ story is fundamentally rooted in a weakening US Dollar hypothesis, so if gold prices reflect that worldview than the Dollar Index should look more like the inverse of that than silver. Oil, too, should fall in line with the yellow metal considering its current highly speculative status. Interestingly, this means that silver positioning could be suggesting that gold has run beyond the scope of its fundamental foundation.

Fundamental Forces

Oil, Metals Likely to Retrace Lower to End Trading Week

Commodities – Energy

Crude Likely To Retrace Spike After US Q3 GDP Report

Crude Oil (WTI)       $79.74       -$0.13       -0.16%
As we expected, the release of US Gross Domestic Product figures forced a bullish correction in oil prices as the world’s largest consumer of crude posted the first quarter of positive growth in a year. The extend of the rally has been markedly more pronounced than expected though, with the WTI contract blowing through support-turned-resistance near $78.17 to come up for a test of the $80 level. September’s Personal Income and Spending figures are on tap tomorrow with monthly declines expected on both fronts. Between this and the fact that the GDP outcome has now had ample time to be digested, it seems unlikely that traders will see too much bullish follow-through. Third-quarter earnings from Chevron Corp present a wild card, but US equity index futures are firmly lower trading down -0.5% so absent a very impressive figure, profit-taking is likely. A pullback sees near-term support above the $78 mark.

Commodities – Metals

Gold, Silver Position to Turn Lower After Post-GDP Advance

Gold       $1045.50       -$1.50       -0.14%
As with oil, gold prices got a boost from the third-quarter US GDP report and surged higher to re-test support-turned-resistance at the bottom of the range that had contained prices for most of the month (near $1045-$1050). Also in line with crude, prices are likely to come off on the back of US data and a bit of profit-taking into the end of the week. Equity index futures are trading lower ahead of the opening bell in Europe, bolstering the near-term bearish scenario.

Silver       $16.58       -$0.10       -1.60%
Silver technical positioning looks much cleaner than that of oil or gold: Prices bounced from support just above $16 to neatly re-test resistance at $16.75 and are now showing a Bearish Engulfing at this juncture. A move back down towards $16 looks very plausible from here.

Fundamental Forces

Oil and Metals May See Support from US Data, Dollar Correction

Commodities – Energy

Crude Prices May See Support from US Housing, Durable Goods Data

Crude Oil (WTI)        $79.30       -$0.25       -0.31%
As expected, crude oil prices corrected higher to re-test the $80/barrel level and have been consolidating between this and support at the $78 mark. A break lower targets just below $77. Fundamentally, the US economic calendar looks compelling with New Home Sales and Durable Goods Orders for September on tap for release. Improvements are expected on both fronts and may boost prices considering the US construction sector is the world’s top consumer of crude oil while a rise in the demand for durables may reveal higher vehicle sales and thereby point to greater fuel demand. Third-quarter earnings reports from tire maker Goodyear and oil giant ConocoPhillips may also prove market moving.

Commodities – Metals

Gold, Silver May See Support from ArcellorMittal Earnings, US Dollar Correction

Gold       $1037.40       -$2.65       -0.25%
Gold positioning is largely unchanged from yesterday, with prices consolidating between near-term support above $1037 and the pierced bottom of a channel that had contained trading for most of this month. Fundamentally, a bit of upside momentum may emerge after the release of better-than-expected third quarter earnings from steelmaker ArcellorMittal offer a broad boost to commodities in general and metals in particular. The aforementioned US economic data releases will help guide risk trends and the US Dollar, thereby extending their effects to gold rates late into European trading. The greenback has chalked up four consecutive up days and a bit of a correction may be due.

Silver       $16.62      -$0.08        -0.48%
Silver prices validated yesterday’s technical outlook, racing lower to find support near $16.75, the 9/30 swing high. Fundamentally, the broad trajectory of risk sentiment is likely to dominate. Near-term support lines up in the $16.40-16.50 region, with a sustained push below that opening the door for a move to test the monthly low at $15.90. Any significant help from the ArcellorMittal earnings report or US Dollar weakness may force a re-test the $17 mark, especially considering momentum readings are now in oversold territory.

Fundamental Forces

Oil Slips Below $80, Metals Consolidate in Familiar Ranges

Commodities – Energy

Crude Slips Below Key $80 Level, Outlook Still Linked Risk Trends

Crude Oil (WTI)       $79.93       -$0.57       -0.71%
Crude prices slipped below the key $80 level, and from a technical perspective, the door is now open for a move to test support just above the $78 mark. The fundamental picture looks supportive of further losses: the Baker Hughes measure of rigs operating in the US rose to the highest since March last week while crude inventories have been trending steadily higher since June, pointing to abundant supply and that should be weighing on prices. However, broad trends in risk appetite across the capital markets’ landscape has proven to be a far more important driver of the WTI contract, so traders will be paying close attention to third-quarter earnings reports from German pharmaceutical giant Merck KGaA and US telecommunications powerhouse Verizon Communications. US equity index futures are trading 0.3% higher ahead of the opening bell in Europe, suggesting risky assets may continue to advance and hinting that crude may not remain below $80 for too much longer.

Commodities – Metals

Gold, Silver Look to Equities and the Dollar for Direction Cues

Gold       $1055.70       +$0.35       +0.03%
As with crude oil, gold prices are likely to find their most potent catalyst in the overall trajectory of risk appetite. To that effect, the aforementioned earnings reports will probably be of greatest interest in the day ahead. Technically, prices continue to consolidate in the familiar $1045 – $1068 range, with minor support at a rising trend line just above $1050.

Silver       $17.70       +$0.02       +0.08%
As with gold, silver continues to consolidate and will look to risk trends as the catalyst for directional momentum. Technically, a descending triangle looks to be forming above the key $17.15–24 support region, hinting at bearish bias that favors a break below the $17 handle to challenge $16.75.

Fundamental Forces

Crude and Metal Prices Consolidate, Risk Trends Remain Top Catalyst

Commodities – Energy

Crude Prices Consolidate, Risk Trends Remain Top Catalyst

Crude Oil (WTI)       $81.30       +$0.09       +0.11%
Crude prices have done little over the past 24 hours, consolidating the previous day’s gains above the $80 level. The fundamental docket is relatively uneventful, with only the Baker Hughes metric of on-line US oil rigs set for release. This leaves price action at the mercy of the US Dollar and the broad trajectory of risk sentiment once again. On that front, US Existing Home Sales data for September as well as third-quarter earnings reports from Microsoft Corp and Honeywell International will be significant. For the time being, futures on the top US equity indexes are in positive territory, suggesting the path of least resistance is higher for risky assets (stocks, commodities, high-yielding currencies) and lower for the battered greenback.

Commodities – Metals

Gold, Silver Look to Equities and the Dollar for Direction Cues

Gold       $1061.19       +$0.95       +0.08%
As with crude oil, gold prices are likely to find their most potent catalyst in the overall trajectory of risk appetite. US equities have been the pacesetter in that regard and there is little reason to think that this will change. Indeed, commodities generally ignored comments from Chinese central bank adviser Fan Gang who said the government should keep fiscal stimulus in place for another year to allow for a “full recovery in 2011”, which one supposes would translate into optimism about demand for raw materials. To that effect, earnings from Microsoft and Honeywell International are the most likely catalysts. Technically, prices remain confined to a range roughly defined between $1045 and $1068.

Silver       $17.68       +$0.02       +0.14%
As with gold, silver continues to consolidate and will look to risk trends to give prices impetus for directional momentum. Technically, a descending triangle looks to be forming above the key $17.15–24 support region, hinting at bearish bias that favors a break below the $17 handle to challenge $16.75.

Fundamental Forces

Oil, Metals Threatened as Risk Appetite Stumbles

Commodities – Energy

Crude Vulnerable as Markets Begin to Shy Away From Risky Assets

Crude Oil (WTI)      $80.79       -$0.58       -0.71%
Crude prices have backed off a bit after barreling through the key psychological barrier at the $80/barrel level in US trading and are now re-testing the juncture on the downside. From a technical perspective, the picture is largely the same as it has been for most of this month, with prices trending higher in a well-defined rising channel. If this pattern is to hold, the $80 level should offer support and a foundation for the next push upward. However, the dynamics of risk sentiment appear to have been shifting rapidly since the end of the Wall St session and the opening bell in Asia. Traders latched on to slightly worse than expected (but still the highest in a year) Chinese GDP figures and the downgrade of Wells Fargo, the largest US home lender, by a single out-of-consensus analyst to send the MSCI Asia Pacific regional equities benchmark index down over 1 percent and weigh by about as much on European equity futures. This hints that investors are becoming jittery at current highs and worried about being the last ones out as the (arguably inevitable) downward correction materializes. The correlations between stocks, crude, and the US Dollar remain potent and, with the WTI contract less that $1 above the critical $80 mark, traders may be in for a near-term trend-defying breakdown if risk aversion continues to dominate the equities landscape going into the New York session. A break out of the rising channel initially sees support around $78.17.

Commodities – Metals

Gold, Silver Outlook Hinges on Risk Sentiment as Confidence Falters

Gold       $1057.22        -$1.84       -0.17%
As with crude oil, gold prices are likely to find their most potent catalyst in the overall trajectory of risk appetite, with the cues from Asia and Europe distinctly bearish for the time being. That said, a host of high-profile earnings reports are set to cross the wires and things could change very quickly. The economic data docket is largely uneventful, with only September’s US Leading Indicators report likely to generate any significant interest from the market. Technically, prices remain confined in the same $20-25 range that has characterized price action for much of this month.

Silver      $17.58       -$0.12       -0.66%
Yesterday’s price action followed a familiar dynamic, with silver mimicking the trajectory of its more expensive counterpart but failing to deliver an equally robust result. Technically, a descending triangle looks to be forming above the key $17.15–24 support region, hinting at bearish bias that favors a break below the $17 handle to challenge $16.75.

Fundamental Forces

Oil, Metals May Correct Higher But Beige Book, Earnings Threaten Volatility

Commodities – Energy

Crude Validates Near-Term Bearish Outlook, Beige Book Now in Focus

Crude Oil (WTI)        $78.70        -$0.42       -0.53%
Crude prices behaved in line with yesterday’s technical forecast, breaking below support at the lower boundary of a bearish Rising Wedge formation to stall near $78 at the lower boundary of the rising channel that has guided prices higher since the beginning of the month after failing to build traction above the psychologically significant $80/barrel level. As expected, disappointing US construction sector data catalyzed the decline (the industry is the world’s largest consumer of crude). Tomorrow’s release of the Federal Reserve Beige Book, a survey of current conditions combined by the central bank’s regional branches, may further fuel downward pressure if traders see that the economic recovery is not as strong as seems to be priced given the breakneck pace of the rally in risky assets since March. Mortgage applications data is also due for release, but any weakness here may already be priced in after the housing data that has already crossed the wires this week. Finally, the Department of Energy is expected to report a jump in crude inventories, which points to ample supply and could weigh on prices. Continued bearish momentum from here will target just below the $76 handle.

Commodities – Metals

Metals May Correct Higher But Beige Book, Earnings Threaten Volatility

Gold       $1056.60       +$1.40       +0.13%
As we noted in yesterday’s forecast, gold prices put in a double below $1070 after showing a Bearish Engulfing candlestick formation, breaking below resistance-turned-support at the top of a minor rising channel pause just above the $1050 figure as PPI figures proved disappointing. As with oil, the Fed’s Beige Book will be important in setting the trajectory for risk appetite and the US Dollar, guiding gold trading by extension. A wealth of earnings reports is also on tap, with the triple threat of Morgan Stanley, Wells Fargo, and US Bancorp of note in particular after a disappointing result from Bank of America sunk capital markets earlier in the week. Continued bearish momentum will target near $1045. Equity index futures are pointing higher ahead of the opening bell in Europe so a bit of a bullish correction (at least) before Wall St comes online may be in the cards.

Silver       $17.47       -$0.02       -0.10%
Silver behaved much the same as gold yesterday and the fundamental drivers are analogous to its more expensive counterpart going forward. Technically, the $17.15–24 region remains critical, with sustained break below that paving the way for a move below the $17 handle to challenge $16.75.

Fundamental Forces

Oil Loses Steam Ahead of $80, Metals May Falter on US PPI

Commodities – Energy

Crude Loses Momentum Ahead of $80, US Construction Data Looms Ahead

Crude Oil (WTI)       $79.26        -$0.35       -0.44%
Crude prices have turned lower after failing to build traction above the psychologically significant $80/barrel level. The fundamental landscape offers room for further losses with September’s US Housing Starts and Building Permits data set to cross the wires. The American construction sector is the world’s largest consumer of oil, and positive readings here could add a much-needed story about rising demand to the more portfolio-driven catalyst of US Dollar weakness and inflation hedging. While expectations do in fact point to slightly higher figures from the previous month, yesterday’s unexpected drop in the National Association of Home Builders (NAHB) measure of construction-sector confidence may be hinting at a disappointing outcome. Technically, prices are testing below the lower boundary of a near-term Rising Wedge formation with momentum studies still negatively divergent coming down from overbought territory, which opens the door for a move to test support near $78 at the lower boundary of the rising channel that has guided prices higher since the beginning of the month.

Commodities – Metals

Metals Trading Focused on Risk, US Dollar but PPI Could Make a Splash

Gold       $1063.57       -$0.63        -0.06%
Gold rebounded test resistance below $1070 but prices now look on pace to form a double top, showing a Bearish Engulfing candlestick formation. Near-term support is seen at the top of a minor rising channel that was broken earlier, with a move lower to target just above the $1050 figure. The fundamental picture remains closely linked with equities and the US Dollar: A slew of high profile earnings reports are due late into European hours before the opening bell on Wall St, with positive outcomes likely to weigh on the greenback and boost optimism about the global economic recovery, both of which are gold-positive. That said, tomorrow’s US PPI figures may present potential for a downswing. A disappointing outcome (particularly in the Core PPI reading that excludes food and energy) would help to ease some near-term concerns about future inflation and help validate technical positioning.

Silver       $17.23        -$0.11       -0.62%
Fundamentally, the drivers remain much the same as with gold. The technical picture looks a bit less bearish, however, with prices unable to re-test the previous swing high above $18 and faltering below the figure. The $17.15–24 region remains critical, with sustained break below that paving the way for a move below the $17 handle to challenge $16.75.

Fundamental Forces

Oil Retains Momentum into Week-End, Metals Vulnerable to Further Downside

Commodities – Energy

Crude Trades at Highest Levels in a Year, US Dollar Trend Remains in Focus

Crude Oil (WTI)     +$77.76     +$0.18     +0.23%
Crude prices have continued to push higher to trade just below $78/barrel, the highest in a year. A bit of event risk is on tap tomorrow with the Baker Hughes count of oil rigs operating in the US set for release against the backdrop of September’s Industrial Production data, which is expected to show that output grew just 0.2% in September, the lowest since June. Considering the number of working rigs has been rising for the past four months, the two metrics together may produce a picture of oversupply that could produce a pullback in crude prices. Third-quarter earnings from energy giant Halliburton may also produce an impact. However, no meaningful correction will be possible without a strong rebound in the US Dollar, whose sharp decline has been the dominant catalyst behind recent gains as traders look to crude as an inflation hedge. Technical positioning is broadly bullish, with prices clearly above significant resistance at the top of a rising channel and looking to the psychologically significant $80 level as the next major hurdle.

Commodities – Metals

Metals Find Near-Term Support but Downward Pressure Remains Formidable

Gold      $1049.11     -$1.09     -0.10%
Gold has continued to diverge from oil prices, breaking below minor trend line support to pause ahead of the $1045 level. A survey of traders polled by Bloomberg showed that the metal may continue lower as the recent rally encourages profit-taking from speculators while driving away jewelry demand. A sustained break below $1040 will see little support emerging until prices meet resistance-turned-support at $1021. US equity index futures are pointing to a lower open on Wall St, suggesting risky assets may correct a bit a bit into the final day of the trading week and boost the safety-linked US Dollar, adding to downward pressure.

Silver     $17.34     -$0.01     -0.06%
The drop in silver has continued to outpace that of its more expensive counterpart, with prices now positioned above support-turned-resistance at the $17.28 level. A break lower leaves the door open for decline all the way to $16.75. As with gold (and all USD-denominated commodities, for that matter), equity futures positioning merits attention, hinting an upswing in the greenback could give silver just enough of a nudge to launch the next leg of a bearish correction.

Fundamental Forces

Daily Commodities Fundamentals: Commodities Close Lower Entering the Weekend

North American Commodity Update, Last Updated 8/14/2009 3:51 PM EST (GMT = EDT +5:00)

Commodities – Energy

Crude Sold Following a Disappointing Consumer Confidence Report

Crude Oil (WTI)   $67.530                         -$2.990                             -4.24%
Crude Oil future prices plummeted today, ending the week with a 3.5% decline back below the psychological $70-per-barrel level. After a week’s worth of important fundamental data releases including the FOMC rate decision and Bank of England Quarterly Inflation Report, the University of Michigan’s Consumer Confidence report turned out to be the main market mover. While this may seem strange, it is not that surprising when put into context; recent data releases have encouraged investors to re-enter higher yielding assets in hopes of a global economic recovery. Equity markets have rallied, which has translated to a bid up of Crude future prices as speculators predict a short-to-medium term hike in demand. Many believed that the United States would be one of the first countries to successfully escape the prolonged global recession; however, today’s consumer confidence figure revealed that Americans are not willing to take the lead. Consumer confidence was expected to increase from 66.0 to 69.0, but upon release, the report showed that the figure had actually dropped to 63.2. As a result, Crude future prices faced a severe sell-off as investors return towards safer assets and wait for an economic turnaround. Looking towards next week, crude could potentially retest the $70-per-barrel level before giving in to the true, market-moving fundamentals.

Department of Energy Inventories

Commodities – Metals

Stronger Dollar and Bearish Outlook Drive Precious Metals Lower

Gold                   $949.000                      -$7.500                           -0.78%
Gold future prices finished lower to close out the week, again losing as the US dollar strengthened. After a worse-than-expected US Confidence Report, the greenback gained across the board as investors flocked towards the relatively safe dollar and fled from higher-yielding assets (equity markets fell significantly). Recall that Gold and the greenback tend to trade inversely as investors use the metal to hedge against dollar weakness/inflation. Simultaneous to the dollar’s advance, today’s Euro-Zone and US CPI reports revealed that inflation is not likely to be of concern in the near-term. This fact was already suggested in numerous global bank statements during the last two weeks. Though Gold’s correlation with the dollar index is not remarkably high, dollar strength should continue to be an indication for Gold price action. Therefore, any encouraging fundamental releases that heighten risk appetite will likely translate into future price increases as well.

Silver                 $14.675                    -$0.312                           -2.08%
Silver futures could not hold on to yesterday’s gains during a volatile day of trading; the metal lost nearly 2% as investors turned bearish following the University of Michigan’s Consumer Confidence report. Though Silver is considered a precious metal like Gold, it has seen far more drastic price action due to its other application. Because Silver doubles as an industrial input, it is particulary sensitive to any changes in global economic outlook. Despite a better-than-expected US Industrial Production figure (0.5% actual vs. 0.4% expected), investors’ recent bullish forecast was not carried into the weekend. As for next week, expect Silver to follow investor sentiment; only time will tell which direction that will be.

-Written by Jay Steinberg, CFDTrading Research
Questions/Comments about this article? Send them to JSteinberg@fxcm.com

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