Crude Oil to Rise as Gold Declines on Strong US Economic Data

DailyFX

Crude oil may rise while gold declines if US economic data continues to trump economists’ expectations. Copper struggles to find clear directional bearing.

Talking Points

  • Crude Oil to Rise if Robust US Economic Data Boosts Risk Appetite
  • Gold, Silver Vulnerable as Anti-Fiat Demand Continues to Erode
  • Copper Stuck in Choppy Range as China Worries Meet Risk Trends

Commodity prices are in consolidation mode in European trade as markets look ahead to a busy US economic calendar. Another relatively supportive outing is expected. February’s year-on-year CPI growth is expected to accelerate to 1.9 percent, marking the highest inflation reading in four months. Meanwhile, Industrial Production is seen rebounding over the same period after a drop in January and March’s preliminary University of Michigan Consumer Confidence gauge is pencilled in at the highest since November.

Furthermore, US economic data has increasingly outperformed relative to expectations since early February, opening the door for rosier outcomes. Markets have treated supportive US data in terms of reducing the scope for Fed stimulus over recent weeks, meaning similar outcomes this time around are likely to be supportive for the US Dollar. That bodes ill for gold and silver by extension amid fading anti-fiat demand. Meanwhile, cycle-sensitive crude oil prices may rise as signs of resilience in the world’s top economy boost broad-based risk appetite.

Implications for copper are more difficult to nail down: near-term correlation studies show the metal has shed much of its link to underlying sentiment trends, with prices consolidating in a choppy range (see chart below). The standstill may reflect the conflicting influence of firming risk appetite and an apparent hawkish shift in Chinese monetary policy. PBOC Governor Zhou Xiaochuan said the central bank’s posture was “no longer relaxed” earlier this week after inflation hit a ten-month high. China is the leading source of global copper demand and worries about a move toward tightening monetary conditions that slows economic growth there may be acting to cap prices. It is unclear for now which side of the argument will ultimately prevail.

WTI Crude Oil (NY Close): $93.03 // +0.51 // +0.55%

Prices broke resistance at 92.72, the 38.2% Fibonacci retracement, exposing the 50% level at 93.77. A further push beyond that boundary eyes the 61.8% Fib at 94.82. The 92.72 level has been recast s near-term support. A reversal back below that targets the 23.6% retracement at 91.43.

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Commodities_Oil_to_Rise_as_Gold_Declines_on_Strong_US_Economic_Data_body_Picture_3.png, Crude Oil to Rise as Gold Declines on Strong US Economic Data

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1590.20 // +2.50 // +0.16%

Prices broke above resistance at 1585.81, the 23.6% Fibonacci retracement, exposing the 38.2% level at 1604.84. A further push above that aims for the 50% Fib at 1620.28. The 1585.81 has been recast support, with a turn back beneath that eyeing the 14.6% retracement at 1574.06.

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Commodities_Oil_to_Rise_as_Gold_Declines_on_Strong_US_Economic_Data_body_Picture_4.png, Crude Oil to Rise as Gold Declines on Strong US Economic Data

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.82 // -0.08 // -0.28%

Prices continue to consolidate above support at 28.46, the 23.6% Fibonacci expansion. Near-term resistance is in the 29.42-92 area, with a break higher exposing a falling trend line now at 30.54. Alternatively, a reversal below support targets the 38.2% level at 27.86.

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Commodities_Oil_to_Rise_as_Gold_Declines_on_Strong_US_Economic_Data_body_Picture_5.png, Crude Oil to Rise as Gold Declines on Strong US Economic Data

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.536 // +0.010 // +0.28%

Prices continue to test resistance marked by the 23.6% Fibonacci retracement at 3.547. A break higher aims for the 38.2% level at 3.594. Near-term support lines up at 3.519, the 14.6% Fib, with drop beneath that initially exposing the March 1 swing low at 3.472.

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Commodities_Oil_to_Rise_as_Gold_Declines_on_Strong_US_Economic_Data_body_Picture_6.png, Crude Oil to Rise as Gold Declines on Strong US Economic Data

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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