Commodities Rise on US Data - Will the ECB Snuff the Rally?

DailyFX

Commodities rose as a strong set of US data buoyed risk appetite overnight but the ECB rate decision may dent sentiment absent guidance on future stimulus efforts.

Talking Points

  • Commodities Rise Overnight as US Data Spurs Risk Appetite Recovery
  • ECB Rate Decision May Dent Sentiment if Stimulus Guidance is Absent
  • September Fed Meeting Minutes Sought for Details on QE3 Mechanics

Commodity prices are edging higher overnight as risk appetite firms across Asian bourses following a supportive set of US economic data. Sentiment-linked crude oil and copper prices followed shares higher while gold and silver found de-facto support in waning haven demand for the US Dollar. S&P 500 index futures are pointing firmly higher, hinting at more of the same ahead.

A report from ADP showed the US private sector added 162,000 jobs in September, topping expectations for a 140,000 increase. Meanwhile, the ISM Non-Manufacturing Composite gauge revealed that service-sector activity unexpectedly accelerated, growing at the fastest pace in six months. The reports helped buoy hopes that a firming recovery in the US will help offset a recession in Europe.

From here, all eyes are on the ECB monetary policy announcement. The growth slump in the Eurozone – which cumulatively accounts for close to a quarter of total global output – represents the most significant headwind to worldwide growth this year.

Priced-in expectations suggest policymakers will keep the monetary policy mix unchanged this time around. A spike in CPI and PPI inflation in September reinforces the likelihood of such a scenario. Still, traders will be keenly interested in any guidance on future growth-supportive efforts. The absence of anything along these lines may prove weigh on risk appetite and cut short commodities’ advance.

Later in the day, the spotlight shifts to the Federal Reserve as the central bank releases minutes from September’s seminal FOMC meeting. Markets will scour the report in an attempt to establish the precise triggers for the Fed’s launch of QE3 and glean any insight on what conditions will need to be met for the program to be wound down.

WTI Crude Oil (NY Close): $88.14 // -3.75 // -4.08%

Prices reversed lower from resistance at 93.60, the 23.6% Fibonacci retracement, to break below the 38.2% level at 89.44. Sellers now aim to challenge the 50% Fib at 86.04, with a push lower beyond that exposing the 61.8% expansion at 82.66. The 89.44 level has been recast as near-term resistance, with a break back above that targeting 93.60 anew.

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Commodities_Rise_on_US_Data_-_Will_the_ECB_Snuff_the_Rally_body_Picture_3.png, Commodities Rise on US Data - Will the ECB Snuff the Rally?

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1778.00 // +3.30 // +0.19%

Prices remain range-bound above a falling trend line connecting major swing highs since early November 2011 (1746.79). Near-term resistance is at 1790.55-1802.80 area, with a break above that exposing 1850.00 and the 1900.00 figure. Support is reinforced by the 23.6% Fibonacci retracement at 1737.59, with a push below that targeting the 38.2% and 50% Fibonacci retracements at 1704.25 and 1677.30 respectively.

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Commodities_Rise_on_US_Data_-_Will_the_ECB_Snuff_the_Rally_body_Picture_4.png, Commodities Rise on US Data - Will the ECB Snuff the Rally?

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $34.60 // -0.18 // -0.05%

Prices are testing resistance at 34.80, the 76.4%Fibonacci retracement. A break higher exposes 36.89, the February 28 closing high. Initial support lines up in the 32.93-33.14 area, marked by a horizontal pivot level and the 61.8% Fib, with a reversal below that targeting the 50% level at 31.79.

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Commodities_Rise_on_US_Data_-_Will_the_ECB_Snuff_the_Rally_body_Picture_5.png, Commodities Rise on US Data - Will the ECB Snuff the Rally?

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.784 // -0.018 // -0.47%

Prices continue to consolidate below resistance at a falling trend line set from early February (3.823). A break higher exposes swing highs at 3.955 and 3.988. Near-term support lines up at 3.707, the 23.6% Fibonacci retracement level. A push below that targets the 38.2% level at 3.627.

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Commodities_Rise_on_US_Data_-_Will_the_ECB_Snuff_the_Rally_body_Picture_6.png, Commodities Rise on US Data - Will the ECB Snuff the Rally?

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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