Talking Points

  • Crude Oil, Copper Under Pressure as S&P 500 Futures Signal Risk Aversion
  • Gold and Silver Lower as Sentiment Slump Stokes Safety Demand for US Dollar

Commodity prices are inching lower ahead of the opening bell on Wall Street as risk-averse return amid anxiety ahead of the conclusion of the EU leaders’ summit in Brussels. Although policymakers have already signed the much talked-about “fiscal compact” designed to institutionalize budget discipline in the region and even floated clues that the timetable to fully capitalize the permanent ESM bailout fund will be pushed up by a year, Greece-linked jitters remain.
The debt-strapped country had today as the deadline to deliver on along checklist of requirements to secure the first tranche of funding through the €130bn second bailout announced two weeks ago, a goal it looks likely to miss. While the EU has allowed Greece to miss many deadlines before, the downgrade in credit market risk following the second 3-year ECB LTRO this week means their tolerance has likely been diminished. This could make for a disappointing final outcome.
A likely ISDA ruling on collective action clauses (CACs) written into the terms of the Greek PSI bond swap may pose another problem. Although the CDS-regulating group said yesterdaythe absence of the ECB from the exchange doesn’t amount to a swap-triggering “credit event”, just such an outcome may happen if PSI participation falls short of the required 75 percent and CACs are invoked to compel rebellious debt holders. That would mean the bond swap was no longer “voluntary”, making it hard to say a default has not happened.
While that’s hardly as ominous a prospect as it was before ECB LTRO efforts built a firm firewall around EU banks, reflexive downward pressure on risk appetite the prospect of the worst-case scenario is emerging all the same. S&P 500 stock index futures are trading lower and weighing on sentiment-linked copper and crude oil prices. The move is also stoking safe-haven demand for the US Dollar, amounting to de-facto downward pressure on gold and silver. Corrective flows are probably compounding the move lower on profit-taking after US stocks took out their 2011 high yesterday. With nothing of note on the US economic calendar, the current trajectory appears likely to carry forward into the week-end, with traders paring back on directional exposure to digest the past week’s heavy dose of fundamental news-flow.
WTI Crude Oil (NY Close): $108.84 // +1.77 // +1.65%
Prices rebounded from support at 105.82, the 23.6% Fibonacci retracement level, but a bearish Three Outside Down candlestick continues to argue for a broadly bearish bias absent a daily close above the pattern’s high at 109.93. A break lower exposes the 38.2% Fib at 103.28.
Crude_Oil_Metals_Prices_Under_Pressure_as_Risk_Appetite_Unravels_body_Picture_3.png, Crude Oil, Metals Prices Under Pressure as Risk Appetite Unravels
Daily Chart - Created Using FXCM Marketscope 2.0
Spot Gold (NY Close): $1718.28 // +21.43 // +1.26%
Prices corrected gently higher from support at 1687.97, the 38.2% Fibonacci retracement to test resistance at the 23.6% level (1727.06). A daily close above this boundary exposes the December 2 high at 1763.00 anew. Alternatively, a break below immediate support exposes the 50% level at 1656.38.
Crude_Oil_Metals_Prices_Under_Pressure_as_Risk_Appetite_Unravels_body_Picture_4.png, Crude Oil, Metals Prices Under Pressure as Risk Appetite Unravels
Daily Chart - Created Using FXCM Marketscope 2.0
Spot Silver (NY Close): $35.48 // +0.80 // +2.31%
Prices completed a Bearish Engulfing candlestick pattern below resistance at 36.99, reversing sharply lower to find support at the 23.6% Fibonacci retracement at 34.59. Near-term resistance lines up at 35.66, the October 28 high. A break higher exposes 36.99 anew. Alternatively, renewed selling through support exposes the 38.2% Fib at 32.97.
Crude_Oil_Metals_Prices_Under_Pressure_as_Risk_Appetite_Unravels_body_Picture_5.png, Crude Oil, Metals Prices Under Pressure as Risk Appetite Unravels
Daily Chart - Created Using FXCM Marketscope 2.0
COMEX E-Mini Copper (NY Close): $3.932 // +0.052 // +1.34%
Prices took out resistance at 3.917, the 38.2% Fibonacci expansion, overturning a Bearish Engulfing candlestick pattern identified yesterday and opening the door for a challenge of the 50% level at 3.985. This level lays closely with the February 9 high at 3.988, with a daily close above the latter boundary overturning an earlier Engulfing pattern and negating the bearish tone of overall positioning. Alternatively, a break back below 3.917 targets the 23.6% expansion at 3.831.
Crude_Oil_Metals_Prices_Under_Pressure_as_Risk_Appetite_Unravels_body_Picture_6.png, Crude Oil, Metals Prices Under Pressure as Risk Appetite Unravels
Daily Chart - Created Using FXCM Marketscope 2.0
--- Written by Ilya Spivak, Currency Strategist for
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