oil

Risk Appetite and Data Support Crudes Surge to New Highs Yet Conviction Does Not Hold

North American Commodity Update

Commodities – Energy

Risk Appetite and Data Support Crudes Surge to New Highs Yet Conviction Does Not Hold

Crude Oil (LS NYMEX) –  $81.85   //  $0.36  //  0.44%

Risk appetite, macro data and supply-and-demand statistics seemed to align for bullish crude traders. Yet despite begin given the fundamental green light (and notably still backed by impressive buying momentum over the past month), the active crude futures contract on the NYMEX was forced to retrace its morning thrust to a fresh, eight-week high just above $83. Whether using a fundamental, technical, sentiment or hedge-based trading approach, every active market participant is conscious of the $84 swing high set back on January 11th and its status as a 16-month high for the market. Surpassing this level could easily banish uncertainty and encourage sidelined investment; but truly extending a bull trend for this commodity will require a broad improvement in investor sentiment and a clear shift in production and consumption fundamentals. As for sentiment, the dollar was lower and equities were modestly higher; but it was obvious that the sparks of risk appetite are not catching. Whether a turn in the markets itself or a prominent economic catalyst is responsible for the inevitable restoration of speculative interest remains to be seen.

For actual drive, today’s fundamentals offered the better source of momentum – though this wouldn’t actually pan out as one would expect. Through the morning, the top headline was the report from China that its exports had surged 46 percent – suggesting global activity was accelerating and economies would require fuel to keep the expansion in place. During the European hours, there were two conflicting reports. Germany reported its crude reserves were 20 percent larger than initially estimated due to deposits reported in the Upper Rhine region. Counteracting this potential supply boost from Europe’s largest economy, OPEC raised its global consumption expectations for the year and upgraded its output projections by 190,000 barrels to 28.94 million barrels per day. Come the active US trading session, traders had hoped that the US Department of Energy inventory figures would be able to break the offsetting nature of the early data. Following the yesterday’s 6.5 million barrel increase from the API report, expectations were probably set higher for the DoE account than the 2.0 million rise expected. In fact, the 1.432 million barrel pickup through March 5th was smaller than expected; and there was a notable 3.181 million barrel and 2.796 million barrel contraction in gasoline and distillate inventories respectively. Furthermore, total fuel consumption rose 0.2 percent to an August high 19.7 million barrels. Nevertheless, with this weekly increase, we have see the longest period of expansion in crude holdings since May and the highest overall stockpiles at 353 million barrels since August.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

The Dollar Drops and Chinese Inflation Accelerates while Gold Tumbles

Spot Gold  -  $1,107.66   //  -$14.19 //  -1.26%

It seemed a dichotomy in nature. The US dollar was on the retreat and China reported remarkable levels of inflation; and yet, gold would tumble on the day. In fact, the commodity was little changed through most of the session; but there was a remarkable swing during the early trading hours of the US session that measured 2.7 percent in a mere two hours. This jump in activity notably pushed the market to lows not seen in over a week and ultimately broke a loose but untested rising channel for the past month.  For fundamental encouragement, the precious metal had a few contradictory dynamics to account for. Running astray of the commodity’s role as a dollar hedge, the decline in the US dollar through much of the day ultimately roused little impetus for price action. Furthermore, the currency’s penchant for playing safe haven seems to fit the assurances of former EU Commission President Prodi who suggested the Greece crisis had passed and other European economies would not follow in its path. However, there are two inconsistencies here. First, Prodi is no longer standing President; so he is entitled to black-and-white assessments; and gold itself has recently taken on a value of safe haven asset due to its value as an alternative to fiat currency with sovereign debt risk as inflated as it is. In the end, neither risk appetite nor credit stability were particularly strong; and long-standing concerns are still certainly engrained. Another questionable driver was China’s report of inflation. The government reported home prices grew at their fastest pace in nearly two years in recent data. This would seemingly support a demand for gold as an inflation hedge; but the implications this price growth has for an asset bubble and instability in the Chinese economy more than compensates for the bullish sentiment that can be derived from this data.

Spot Silver  -  $16.98   //  -$0.28  //  -1.62%

Just as surely as the dollar would retrace its gains yesterday, the currency would recover much of its losses today. In the end, this would leave highly-sensitive silver with a mute, dominant fundamental driver. From speculative readings, equities and other key markets were slowly building in favor of growth-linked performance. Nonetheless, this precious metal would take its cues from gold and close its worst daily performance in two weeks. Looking at speculative demand, iShares (the largest ETF backed by silver) reported its holdings were unchanged at 9,351 tons following two sales of 61 tons a piece over the past week.

Discuss gold and oil trading with other traders in the DailyFX Forum

Written by John Kicklighter, Strategist

Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

oil

Australian Dollar Continues to Firm

Euro / US Dollar

A larger EURUSD rally, probably a 4^th wave, may be underway towards 13870-14030.  4^th waves are often choppy, usually flats or triangles.  An impulsive rally from 13433 and corrective decline from 13738 may be complete.  I cautiously favor the upside against 13530.

British Pound / US Dollar

After meeting resistance from former support / the 38.2% of the decline from 15825 / channel resistance, the GBPUSD has rolled over.  I favor a drop below 14780 in a 5^th wave.  Risk can be moved to 15200.  15030 is resistance.

Australian Dollar / US Dollar

The AUDUSD is firm and while I am bigger picture bearish against 9334, the AUDUSD could continue to strengthen near term.  9170 and 9300 are potential resistance levels.  A drop below 9050 is needed in order to suggest that the larger trend has turned back down.

New Zealand Dollar / US Dollar

As mentioned yesterday, it seems likely that the NZDUSD will exceed 7088 before the corrective advance from 6804 is complete.  Price above 6959 keeps the NZDUSD on a path higher towards 7156.  Action since 7088 could also be a triangle.  7015/30 is short term support.

US Dollar / Japanese Yen

Given the extent and structure of the USDJPY advance from 8813, it is possible that an A-B-C decline is complete from 9380.  A move above 9217 would strongly suggest that the USDJPY is headed above 9380, which would indicate a breakout above trendline and channel resistance.

US Dollar / Canadian Dollar

No change: “The USDCAD has dropped below 10368 and to its lowest level since mid January.  The potential for a bottom and reversal remain, especially since the decline from 10577 is now 161.8% of the decline from 10684-10491 and the decline from 10684 is 100% of the decline from 10784.  Even if the decline from 10577 is a 3^rd wave (rather than a c wave), a 4^th wave correction would probably reach at least 10368.”

US Dollar / Swiss Franc

No change: “The decline from the 10900 high February can be counted as a 3 wave setback and the rally from the low (10646) may be an impulse.  The other count is a double zigzag (a-b-c-x-a-b-c).  Confusion reigns at this point and the key levels are 10646 and 10900.  Until one of those levels gives way, the market remains in a range.”

Gold

No change: “Gold has traded sideways since December and appears to be building a bullish base.  Specifically, the base could be a complex head and shoulders (the head itself is a head and shoulders).  In order to complete the pattern, gold would sell off once more towards 1075 before finding a right shoulder low.”

Light Crude

Crude remains strong and the larger trend is considered up as long as price is above 6859 (under there completes a longer term head and shoulders top).  Still, at least a setback looks likely near term as there are 5 waves up from the February low (and wave v is a diagonal).  8286-8350 is potential resistance from a gap.  Expect weakness to at least below 7705.  7613 is potential support.  It is possible that the rally from the February low completes wave C of an A-B-C flat.  An impulsive decline from near current price would confirm as much.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email tojsaettele@dailyfx.com.

oil

Crude Edges Ever Higher as Momentum Substitutes Fundamental Drive

North American Commodity Update

Crude Oil (LS NYMEX) -  $81.82   //  $0.32  //  0.39%

There was relatively little for fundamental traders to work with Monday; but that wouldn’t prevent oil from pushing a new eight-week high and closing the gap to the $84 swing high set on January 11th. At this point, the bullish bias can sustain itself on sheer momentum as long as there isn’t an active force to fight the market’s climb. In fact, over the past month, the nearby crude futures contract has climbed 15 of the 20 active trading days and advanced over 18.5 percent. On the other hand, the high volume levels that supported the initial bearish reversal have notably cooled while the CBOE Crude Oil Volatility Index has held below the one and three-month average around 35 percent. Nonetheless, the CFTC’s Commitment of Traders report revealed a growing interest amongst the speculative crowd with net longs rising a third week to 91,400 contracts.

Yet, speculative interests will not go unchallenged going forward. This morning, wariness over the financial stability of Greece and the Euro-area was further tempered by French President Sarkozy’s vow that the EU was prepared to support the ailing member should it need assistance. Furthermore, officials are reportedly working to create a European Monetary Fund that could be used to extend loans to Union members without inviting moral hazard or require nations to go outside the group to appeal for assistance. The timing for such an ambitious plan is critical however as a crisis before the fund can be implemented would be far more difficult to fix than prevent. Another concern that has not yet hit critical mass is the development of an asset bubble in China. Officials recently announced that all loan guarantees that were made on the part of local governments would be nullified and future assurances would be banned. It is speculated that a considerable percentage of 2009’s momentous build in lending was established through just such means, meaning the probability of default was much greater. Considering this booming speculative market is thought to have already been on the cusp of an asset bubble, this development could finally lead to a dramatic unwinding of overwrought capital markets. From sentiment to supply concerns, forecasts for inventory figures are already calling for a sixth consecutive increase in US reserves. According to Bloomberg’s poll, economists expected a 2 million barrel increase through the week ending March 5th. This would extend the longest strength of gains since May and further extend stockpiles that are already at their highest level since August at 341.6 million barrels.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Spot Gold  -  $1,121.55  //  -$13.10 //  -1.15%

As testament to the relatively restrained volatility over the past few weeks (and the consistency of the controlled bullish bias); spot gold suffered its sharpest decline in a month Monday. Historically, this downdraft isn’t particularly sharp. Nonetheless, slipping below $1,130 has disrupted the market’s forward momentum. Furthermore, the 1.2 percent decline in the precious metal stood out amongst other asset benchmarks that were comparatively little changed for the day. Where did this wave of selling come from? The commodity has established a function that has traded back and forth between speculative asset and alternative investment to traditional fiat currencies. Over the past few weeks, the commodity has enjoyed an advance alongside equities but contradictory to the tepid sense of risk appetite that has developed in the background. For this asset to enjoy the trappings of a speculative asset, investors will have to be encouraged by fresh 12 to 16 month highs from the benchmarks from the various security classes. Looking at the COT data for last week’s positioning, net speculative interest on the COMEX rose for a fourth week to 207,400 contracts. Alternatively, a rebound in sentiment would naturally counteract gold’s appeal as a safe haven. This morning, news circulated that the EU was working to establish a lender-of-last-resorts program that would act like an IMF for the European region to avoid crises within the group. However, this does not immediately answer all the market’s troubles. The removal of stimulus, cracks in sovereign debt risk and overvalued markets make for rough financial terrain over the coming months and quarters.

Spot Silver  -  $17.21   //  -$0.15  //  -0.86%

Silver suffered its sharpest decline in 9 days Monday as the dollar stalled in its advance and gold guided the precious metals complex lower. Looking at market activity behind futures, delayed volume on the active silver contract traded on the COMEX reveals the advance of the past week was backed by relatively restrained turnover. On the other hand, open interest maintained its advance from late February lows. According to COT data, speculative positioning accounted for 23.3 percent of open interest this past week from 19.3 percent reported in the previous reading.

Discuss gold and oil trading with other traders in the DailyFX Forum

Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

oil

British Pound Testing Potentially Strong Resistance

Euro / US Dollar

A larger EURUSD rally, probably a 4^th wave, may be underway towards 13870-14030.  4^th waves are often choppy, usually flats or triangles.  An impulsive rally from 13433 and corrective decline from 13738 may be complete.  This is bullish but I am uncomfortable with long positions at this point with equities testing key resistance levels (another view is presented with the USDCHF).

British Pound / US Dollar

The GBPUSD has met resistance from former support / the 38.2% of the decline from 15825, at 15181.  Channel resistance reinforces resistance at the current level.  I am looking for a turn lower in a 5^th wave.  Price should not come close to 15533.

Australian Dollar / US Dollar

The AUDUSD is nearing 9148, which is where the rally from 8796 would sport 2 equal legs.  9170 would be additional resistance.  9050 is potential short term support.  A drop below 8974 is needed in order to suggest that the larger trend has turned back down.

New Zealand Dollar / US Dollar

I wrote last week to “favor the downside against 7022.  A move above there would probably give way to strength above 7088 and a test of 7156.”  The NZDUSD has exceeded 7022 and short term support is 6940/80.  Action since 7088 could also be a triangle.

US Dollar / Japanese Yen

The USDJPY rally has reached the 61.8% retracement of the decline from 9217.  This level is reinforced by former support.  Given the extent and structure of the advance, it is certainly possible that an A-B-C decline is complete from 9380.  Expect consolidation / pullback.  Initial support is 90.

US Dollar / Canadian Dollar

The USDCAD has dropped below 10368 and to its lowest level since mid January.  The potential for a bottom and reversal remain, especially since the decline from 10577 is now 161.8% of the decline from 10684-10491 and the decline from 10684 is 100% of the decline from 10784.  Even if the decline from 10577 is a 3^rd wave (rather than a c wave), a 4^th wave correction would probably reach at least 10368.

US Dollar / Swiss Franc

The decline from the 10900 high February can be counted as a 3 wave setback and the rally from the low (10646) may be an impulse.  The other count is a double zigzag (a-b-c-x-a-b-c).  Confusion reigns at this point and the key levels are 10646 and 10900.  Until one of those levels gives way, the market remains in a range.

Gold

No change: “Gold has traded sideways since December and appears to be building a bullish base.  Specifically, the base could be a complex head and shoulders (the head itself is a head and shoulders).  In order to complete the pattern, gold would sell off once more towards 1075 before finding a right shoulder low.”

Light Crude

Crude remains strong and the larger trend is considered up as long as price is above 6859 (under there completes a longer term head and shoulders top).  Still, at least a setback looks likely near term as there are 5 waves up from the February low (and wave v is a diagonal).  8286-8350 is potential resistance from a gap.  Expect weakness to at least below 7705.  7613 is potential support.  It is possible that the rally from the February low completes wave C of an A-B-C flat.  An impulsive decline from near current price would confirm as much.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email tojsaettele@dailyfx.com.

oil

Crude Traders Unable to Exploit Technical Break as Risk Ways the Market Down

North American Commodity Update

Commodities – Energy

Crude Traders Unable to Exploit Technical Break as Risk Ways the Market Down

Crude Oil (LS NYMEX) –  $80.39  //  -$0.48 //  -0.59%

Without momentum to step in to support yesterday’s push above $80.50, the active light sweet crude futures contract on the NYMEX would ultimately be led to a corrective move. Therefore, while the commodity technically marked its highest close since January 11^th Wednesday, the market is still anchored to the congestion that has stalled progress for going on two weeks now. Undermining speculative efforts to carry crude to a new 16-month high are the dampening effects that stalled risk appetite has had across the capital markets. The same hesitation at the threshold of a new trend was seen in equities and EURUSD. The curb on sentiment is still a culmination of many different factors (including the struggles of an economic recovery, a withdrawal of government stimulus and uncertainty in sovereign debt risk); but risk aversion was leveraged today through a few notable events. The European Central Bank and Bank of England’s respective monetary policy decisions would offer little guidance on the difficult balance between growth and debt reduction. Both groups would maintain their benchmark rates and the BoE maintained its 200 pound bond purchasing program. However, the ECB would take another, measured move towards tightening with the announcement that it was switching to a variable rate on its three-month cash offers. Exacting a greater effect on sentiment, Greece finally decided to go forward with its necessary 5 billion euro bond sale after its spreads dropped following yesterday’s additional austerity cuts. With a bid of nearly three times what was offered, the market seemed confident in Greece’s ability to finance its debts. Nonetheless, calls for the EU to announce details on any aid package should the member economy need it from Finance Minister Papaconstantinou reflects the fine line this region is walking.

Going forward, it is very unlikely that oil will be able to decouple from its role as a speculative instrument. With global investors wary of adding to risky positions for fear of an unforeseen crisis, going long energy when global growth is still tame would be a risky step – especially at the market’s current highs. As for the ongoing adjustments to demand forecasts (through growth readings), the economic docket was light meaningful releases. Topping the list was the revision to the Euro Zone’s fourth quarter GDP figures. Whereas the headline figures for growth were unchanged at a 0.1 percent increase over the three-month period, household spending was notably upgraded to an unchanged figure. In other news, US factory orders rose by 1.7 percent in January and consumer spending – measured through the ICSC Chain Store Sales report – rose 2.7 percent. Tomorrow, the US non-farm payrolls could give the most meaningful adjustment to growth forecasts for the world’s largest economy that the market has seen in some time. Expectations are already set low with a forecast for 65,000 jobs lost and an uptick in the unemployment rate to 9.8 percent; but this speaks more to the slow recovery the economy has ahead of it rather than ushering in renewed fear of a secondary recession. From the supply side, the US Department of Energy inventory report for the week ending February 26^th yesterday recorded a 4.03 million barrel increase – extending the longest series of weekly increases since May and which pushed total inventories to its highest level since August. Alternatively, refineries increase their utilization rates to 81.9 percent – the highest level since October.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

Tempered Risk Appetite Draws Gold’s Controlled Rally to a Close

Spot Gold  -  $1,131.80  //  -$8.10  //  -0.71%

Spot gold fell for the first time in six days, ending the longest stretch of gains since early October. However, this pullback would ultimately come at the same pace the initial upswing was running. Quantifying the lack of momentum behind the metal’s recent bull trend, the CBOE’s Gold Volatility Index fell to a seven-week low of 20.06 percent. Notably, this activity levels just above the January and October lows that preceded forceful bearish and bullish waves respectively. This trend towards moderation comes from the soothed sense of financial uncertainty that peaked with the perceived Greek crisis. However, this is not to mean that risk trends have vanished for good while inflation and growth concerns step back in. Greece’s ability to fund its deficit is still questionable and a revival in market-wide fear could expose doubts about this region. Yet, even if this hot spot for investor anxiety were to fade, there is still a matter of ballooned global deficits and warnings surrounding sovereign credit ratings for even the largest economies. This raises the value of the metal as a safe haven when investors are looking for an alternative to devalued fiat currency. In the meantime, Friday’s US employment report could resuscitate gold bug’s focus on risk trends as this data weighs on investors’ confidence about the global recovery and further exacts its influence on the US dollar.

Spot Silver  -  $17.12   //  -$0.08  //  -0.44%

Like its more expensive counterpart, silver would end the day in the red. However, the pullback the metal would put in for was notably more controlled than the series of daily advances that preceded it. Lacking the clear function as a store of value that gold so blatantly exploits, this commodity is more sensitive to the whims of risk appetite and the actions of the US dollar. This could lend itself to leveraged volatility following the release of the often-unpredictable US NFPs.

Discuss gold and oil trading with other traders in the DailyFX Forum

Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

oil

Euro / Dollar; Implementing a Stop and Reverse Strategy

Euro / US Dollar

The EURUSD is either headed lower in a terminal thrust from a triangle or is headed higher following completion of a ending diagonal.  Given the media’s focus on the euro decline, the latter seems more likely.  From a strategic perspective, I like shorts below 13690 with a stop and reverse at that point.  If the stop and reverse is triggered, then the initial objective is 13840.  If not, then the downside objective is 13100.

British Pound / US Dollar

The GBPUSD has plunged in what is clearly a 3^rd of a 3^rd wave decline (3 of 3 of 3 from 15831).  A series of 4^th and 5^th waves are expected to unfold over the next several weeks.  Near term, expect resistance at 15100 – price should remain below 15350.

Australian Dollar / US Dollar

No change: “After reaching the area of the former 4^th wave (common topping area) and slightly exceeded the 61.8% retracement of the previous decline, the AUDUSD rolled over and declined to 8800.  That decline may be just an x wave in a larger correction that will exceed 9077.”  Resistance would be at 9170.

New Zealand Dollar / US Dollar

No change: “The NZDUSD is in the same situation as the AUDUSD.  The rally from 6804 may have completed the entire correction from 6804 but respect the potential for an extended and more complex advance.  Staying below 7090 keeps me bearish for a break below 6800.  Above there would expose 7156-7201.”

US Dollar / Japanese Yen

Continue to favor the downside, targeting 8690-8736 (8690 is the 100% extension of the decline from 9380).  A decline to that level may complete an A-B-C decline from 9380.  Price ideally remains below 8954.  Exceeding that level would expose 8975-9038.

US Dollar / Canadian Dollar

The USDCAD has dropped below 10368 and to its lowest level since mid January.  The potential for a bottom and reversal remains but confidence is low.  It is also possible that a bearish triangle is complete from the October 2009 low at 10684.  10450 is resistance.

US Dollar / Swiss Franc

The USDCHF is in the same position as the EURUSD (but as the inverse).  A triangle may be complete at 10692.  If so, then the USDCHF is headed higher in a terminal thrust from the triangle.  The other possibility is that an ending diagonal is complete from 10600.  It is best to implement the stop and reverse strategy with 10690.

Gold

Gold has traded sideways since December and appears to be building a bullish base.  Specifically, the base could be a complex head and shoulders (the head itself is a head and shoulders).  In order to complete the pattern, gold would sell off once more towards 1075 before finding a right shoulder low.

Light Crude

Crude remains strong and the larger trend is considered up as long as price is above 6859 (under there completes a head and shoulders top).  Still, at least a setback looks likely near term in a c wave that should end below 7705.  Supports are 7613 and 7472.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email tojsaettele@dailyfx.com.

oil

Canadian Dollar Strong; but Still above January Low

Euro / US Dollar

The EURUSD continues sideways trend continues (although there was a spike below the 2/18 low last night).  A break below 13440 or above 13700 is required in order to set a directional bias.  A break lower would shift focus to the Fibonacci extension near 13100 and a break higher to parallel channel.

British Pound / US Dollar

The GBPUSD has plunged in what is clearly a 3^rd of a 3^rd wave decline (3 of 3 of 3 from 15831).  A series of 4^th and 5^th waves are expected to unfold over the next several weeks.  An objective is a Fibonacci extension at 14320.  Price should remain below 15100.

Australian Dollar / US Dollar

No change: “After reaching the area of the former 4^th wave (common topping area) and slightly exceeded the 61.8% retracement of the previous decline, the AUDUSD rolled over and declined to 8800.  That decline may be just an x wave in a larger correction that will exceed 9077.”

New Zealand Dollar / US Dollar

No change: “The NZDUSD is in the same situation as the AUDUSD.  The rally from 6804 may have completed the entire correction from 6804 but respect the potential for an extended and more complex advance.  Staying below 7090 keeps me bearish.  Above there would expose 7156-7201.”

US Dollar / Japanese Yen

I wrote last week that “the USDJPY rally (from 8481) is corrective, which leaves the pair vulnerable to weakness below that level.  Still, a larger correction may be underway since the decline from 9380 is not impulsive either.  The pair has rolled over and dropped through 9140 and 9056.  The count above suggests additional weakness below 8854.”  8975-9040 is resistance and 8690-8736 would be potential support.

US Dollar / Canadian Dollar

The USDCAD has dropped below 10368 and to its lowest level since mid January.  The potential for a bottom and reversal remains but confidence is low.  It is also possible that a bearish triangle is complete from the October 2009 low at 10684.  10450 is resistance.

US Dollar / Swiss Franc

No change:  “I remain bigger picture bullish the USDCHF but bulls should keep risk tight given the near term chop.  Bottom line; stay bullish above 10645 (be aware that a rally above 10902 could complete a diagonal from 10607).  11026-11091 is a target area.”  A drop below 10700 would delay the bullish bias.

Gold

Gold’s failure to extend losses dampens confidence in the downside.  This bullish count, in which the metal would reach a new high, is valid against 108850.

Light Crude

Crude remains strong and the larger trend is considered up as long as price is above 6859 (under there completes a head and shoulders top).  Still, at least a setback looks likely near term.  Supports are 7613 and 7472.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email tojsaettele@dailyfx.com.

oil

Crude Elicits another Swing of a Tight Range as Risk Trends Clash

North American Commodity Update

Commodities – Energy

Crude Elicits another Swing of a Tight Range as Risk Trends Clash

Crude Oil (LS NYMEX) –  $78.81  //  -$0.85 //  -1.07%

Volatility behind oil futures was relatively tame throughout Monday aside from a brief period during the early afternoon hours of the US session. Nonetheless, this short-lived move was momentous enough to span a frequented range loosely established between $80.50 and $78. This is a relatively modest range considering the level of volatility behind price action. This combination of high activity and limited room to run reflects the indecision in investor expectations for risk appetite; but technically and fundamentally, it is also a sign that something will have to give soon. For fundamental impetus this morning, there was a distinct departure from correlation between crude and underlying sentiment trends. Through all three major sessions (Asian, European and US) on Monday, equities were on the advance – though the pace was relatively restrained. The popular consensus among market commentators is that the advance in stocks was reflective of confidence behind a meaningful resolution to potential crises developing in the Euro Zone and UK. Yet, a tumble from the euro and pound discard this theory. In reality, there was little consistency in underlying sentiment across the various asset classes; and these particular circumstances likely allowed oil to adopt the universally high-level of volatility while allowing the commodity to defer to its own technicals and fundamentals for direction (or lack thereof).

For supply-and-demand considerations, there were many big-ticket economic releases on which to refine expectations for economic activity. Offer the most straightforward read on oil consumption forecasts, the series of February manufacturing sector activity reports would disappoint. Among the headlines this morning, the biggest drop from the US ISM factory activity gauge in 14 months and a year-low in the Chinese counterpart to this report indicated a cooling in production efforts from the world’s two largest energy consumers. In other news, the US reported an improvement in consumers spending – which accounts for more than three-quarters of the economy. Spending through January rose for a fourth consecutive month by 0.5 percent. These are promising figures; but in truth their influence on demand for crude has already been factored into the commodity’s fair value. From this standpoint, tomorrow’s API inventory figures and Wednesday’s DoE numbers will offer a more lasting influence on the equilibrium between supply and demand. This is especially true for the government’s report considering the consensus for a fifth weekly increase in stockpiles of 1.05 million barrels would mark the long period of expansion since the period ending May 1^st.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

A Rally from the Dollar and Dow Keeps Gold Little Changed Monday

Spot Gold  -  $1,118.05  //  $0.45 //  0.04%

It is unusual to see gold carving such a small range while the other speculative benchmarks have developed impressive levels of volatility; but this reserved pace does have its fundamental groundings. Looking at a chart of the precious metal, Monday’s range was the smallest seen since February 15^th. From a technical perspective, this can be described as stalled momentum in the face of a closely monitored $1,125 figure. Alternatively, looking at the economic dynamics of this tempered pace, we see some of the market’s primary drivers offering conflicting bearings. For gold’s role as a speculative asset, equities would advance steadily through the day. On the other hand, the metal’s function as a dollar-hedge would work against it as the currency established hearty gains against key counterparts through the early hours of the US session. Considering the greenback frequently follows its role as a safe-haven currency, this divergence between risk trends and dollar under high volatility conditions is unusual. As the week wears on, these various roles will likely realign themselves and a clear bearing on risk appetite will put the gold back on trend. In the meantime, perhaps the collection of central bank rate decisions (starting with the RBA’s meeting early in Tuesday’s Asian session) can develop the argument of whether fiat currency or precious metal represents the better store of wealth.

Spot Silver  -  $16.46   //  -$0.02  //  -0.12%

Silver has a dual role among the fundamental crowd. As a precious metal, there is a clear value as a speculative instrument. On the other hand, it also maintains an industrial use as affordable metal. This unique position doesn’t often lead to significant imbalances because its economic use is usually dwarfed by the volatility behind risk sentiment trends. However, a sharp rally in copper prices this morning in response to the earthquake in Chile (the world’s largest producer of the metal) would lead to a meaningful advance in the base metals complex. At its day high, silver was pushing a record high; but a retracement in copper and relatively strong dollar would eventually lead silver to a modest change for the day.

Discuss gold and oil trading with other traders in the DailyFX Forum

Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

oil

British Pound Plunges; Reaches Fibonacci Confluence

Euro / US Dollar

The EURUSD has been unable to mount much of a rally since the low was made on February 18^th.  Staying below 13695 keeps the pair headed lower towards the Fibonacci extension near 13100.  A rally above would expose 13800-40.

British Pound / US Dollar

The GBPUSD has plunged in what is clearly a 3^rd of a 3^rd wave decline (3 of 3 of 3 from 15831).  Fibonacci extensions are just below today’s low.  A series of small 4^th and 5^th waves should unfold, keeping the pair headed lower.  15000 is short term resistance.

Australian Dollar / US Dollar

After reaching the area of the former 4^th wave (common topping area) and slightly exceeded the 61.8% retracement of the previous decline, the AUDUSD rolled over and declined to 8800.  That decline may be just an x wave in a larger correction that will exceed 9077.

New Zealand Dollar / US Dollar

The NZDUSD is in the same situation as the AUDUSD.  The rally from 6804 may have completed the entire correction from 6804 but respect the potential for an extended and more complex advance.  Staying below 7090 keeps me bearish.  Above there would expose 7156-7201.

US Dollar / Japanese Yen

I wrote last week that “the USDJPY rally (from 8481) is corrective, which leaves the pair vulnerable to weakness below that level.  Still, a larger correction may be underway since the decline from 9380 is not impulsive either.  The pair has rolled over and dropped through 9140 and 9056.  The count above suggests additional weakness below 8854.”  8975-9040 is resistance.

US Dollar / Canadian Dollar

I am extremely bullish against 10368.  The rally from there is in 5 waves, which indicates, with a high degree of confidence, that the larger trend has turned up.  10480-10520 is short term support.  The minimum objective is above 10875.

US Dollar / Swiss Franc

No change:  “I remain bigger picture bullish the USDCHF but bulls should keep risk tight given the near term chop.  Bottom line; stay bullish above 10645 (be aware that a rally above 10902 could complete a diagonal from 10607).  11026-11091 is a target area.”  A drop below 10700 would delay the bullish bias.

Gold

Gold has broken below a short term channel and price declining from the top of its long term channel warns of a more significant downside reversal.  The short term structure is clearing up.  The decline from 1132 is in 5 waves, which indicates that the larger trend has probably turned down.

Light Crude

An expanded flat is probably nearing completion in crude.  I wrote last week that “if this is the pattern unfolding, then price would exceed 7804 before the larger trend turns back down.”  I favor the downside against 8078.    Coming under 7613 would probably be enough to suggest that the larger trend has turned down.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email tojsaettele@dailyfx.com.

oil

Oil, Gold Threatened as Greece Sinks Risky Assets

Commodities – Energy

Oil Prices Threaten Support as Greek Downgrade Threat Sinks Risky Assets

Crude Oil (WTI)        $79.53       -$0.47       -0.59%
Technical positioning is essentially unchanged from yesterday: prices at the bottom of a rising channel set from the swing low established earlier this month (now at $79.17), with a break lower exposing horizontal support at $77.53 and ultimately the $76 figure. The push lower may be catalyzed as risky aversion makes a comeback in the wake of comments from ratings powerhouse Standard & Poor’s, who said that they may downgrade Greece again by the end of March. This comes on the heels of yesterday’s downgrade of Greece’s four top banks by Moody’s. The issue has also been compounded by comments from Greek Deputy PM Theodoros Pangalos, who told the BBC that Germany has no right to criticize his country after devastating it under the Nazi occupation, adding that the current crop of EU leaders are of “very poor quality” and unfit to manage Europe’s fortunes. Such outbursts will make it all the more difficult for Western Europe to sell a Greek bailout to its electorates, who are already upset with the idea of spending their tax money to finance southern Europe’s spendthrift policies, making the likelihood that the troubled region is left to its own devices significantly more likely. The prospect of a sovereign default with the Euro Zone has sent investors fleeing out of risky assets, with stocks broadly lower in Asia as well as opening in the red in Europe. US equity index futures are likewise in the red, hinting that oil may mount a push lower considering the near-term percent change correlation between crude and the MSCI World Stock Index stands at a firm 0.91. January’s US Durable Goods Orders and weekly Jobless Claims figures headline the economic calendar.

Commodities – Metals

Gold, Silver to Extend Losses as Risky Aversion Gains Momentum

Gold       $1091.90       -$5.85        -0.53%
Prices have taken out range support at $1101.16, with the door now open for a move to resistance-turned-support at the top of a falling channel established from January’s swing high (now at $1073.21). As with oil, the turmoil in Greece promises to encourage further losses as the near-term percent change correlation between the yellow metal and the MSCI World Stock Index remains significant at 0.75.

Silver       $15.75       -$0.22       -1.39%
Technical positioning is unchanged from yesterday: are trading sideways above horizontal support at $15.68, with near-term resistance at the bottom of a previously broken rising channel set from the swing low set earlier this month. The correlation between the cheaper precious metal and the MSCI World Stock Index matches that of its more expensive counterpart at 0.75, suggesting bearish momentum is set to resume. A break past current support exposes considerable downside potential toward the $15.00 figure.

Next Page »