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Commodities Rally May Stall as US Economic Data Tempers QE3 Bets

By , Currency Strategist
23 August 2012 10:24 GMT

Talking Points

  • Crude Oil, Copper Aim Higher as S&P 500 Futures Signal “Risk-On” Mood
  • Gold and Silver Continue to Build Higher as Fed Minutes Stoke QE3 Bets

Commodity prices are pushing broadly higher as markets continue to revel in the aftermath of a slightly more dovish than expected set of FOMC meeting minutes, shrugging off a disappointing Chinese PMI print and another contraction services- and factory-sector in activity in the Eurozone. The report showed that many FOMC members thought additional easing would “likely be warranted fairly soon” unless incoming data point to a “substantial and sustainable” strengthening in the economic recovery.

S&P 500 stock index are pointing firmly higher in early European trade, hinting the risk-on mood is set to carry forward as Wall Street comes online. This opens the door for growth-linked crude oil and copper prices to follow shares higher while gold and silver continue to feed on Dollar debasement fears. The weekly set of US Jobless Claims figures as well as July’s New Home Sales report headline the calendar. Narrow improvements are expected on both fronts, which may pour a bit of cold water on Fed stimulus bets and rein in sentiment as traders recall that US economic data has cautiously improved relative to expectations over recent weeks.

WTI Crude Oil (NY Close): $97.26 // +0.42 // +0.43%

Prices are testing resistance at 97.82, the 61.8% Fibonacci retracement, with a break higher exposing a falling trend line set from the late-February swing top now at 99.24. This barrier is reinforced by the psychologically significant $100/barrel figure. Near-term support is at 95.41, the February 2 low, with a drop back below that targeting the 50% Fib at 93.90.

Commodities_Rally_May_Stall_as_US_Economic_Data_Tempers_QE3_Bets__body_Picture_3.png, Commodities Rally May Stall as US Economic Data Tempers QE3 Bets

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1654.65 // +16.85 // +1.03%

Prices are en route to test a major falling trend line set from the August 23 2011 peak, now at 1663.13, after breaking resistance in the 1620.45-35.70 congestion area. A break above this barrier would mark a significant bullish trend development and initially open the door for a challenge of 1680.00. The 1620.45-35.70 area has been recast as near-term support.

Commodities_Rally_May_Stall_as_US_Economic_Data_Tempers_QE3_Bets__body_Picture_4.png, Commodities Rally May Stall as US Economic Data Tempers QE3 Bets

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $29.84 // +0.52 // +1.78%

Prices punctured resistance at 29.42 and are now probing above the 30.00 figure to challenge the 30.69-78 area marked by a horizontal pivot and the 123.6% Fibonacci extension. A break above this barrier exposes the 138.2% level at 31.33. The 29.42 level has been recast as near-term support.

Commodities_Rally_May_Stall_as_US_Economic_Data_Tempers_QE3_Bets__body_Picture_5.png, Commodities Rally May Stall as US Economic Data Tempers QE3 Bets

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.471 // +0.017 // +0.49%

Prices cleared resistance at a falling trend line set from early April as well as a horizontal barrier at 3.442 to expose 3.535, the range top capping the upside since late May. A push higher beyond that initially exposes 3.618. The 3.442 level has been recast as near-term support.

Commodities_Rally_May_Stall_as_US_Economic_Data_Tempers_QE3_Bets__body_Picture_6.png, Commodities Rally May Stall as US Economic Data Tempers QE3 Bets

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

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23 August 2012 10:24 GMT