Crude Oil Sinks on Cyprus Bank Levy, Gold Treading Water

DailyFX

Crude oil is under pressure amid broad-based risk aversion as markets react to details of Cyprus’ EU bailout deal emerged. Gold prices are treading water.

Talking Points

  • Crude Oil, Copper Sold on Risk Aversion After Cyprus Bailout Deal
  • Gold, Silver Tread Water as Prices Struggle to Pick Dominant Catalyst

Crude oil and copper prices are tracking sharply lower as broad-based risk aversion sweeps financial markets after the terms of a bailout deal for Cyprus emerged over the weekend. The proposal ties a €10 billion rescue package from the “troika” (EU/ECB/IMF) to a levy on Cyprus banks’ accounts. Deposits up to €100,000 are to be taxed at 6.7 percent tax while those above that threshold are to pay out 9.9 percent.Gold and silver are little-changed, with prices caught between upward pressure from store-of-value haven flows and headwinds from an appreciating US Dollar.

While Cyprus is a relatively small economy – comprising just 0.2 percent of overall Eurozone GDP – the level of panic evident across financial markets likely reflects fears of the precedent that EU officials are setting. As with Greece, investors are transposing what is happening now Cyprus to what a similar course of action might look like were to be implemented in a country like Spain, where a sickly banking sector is likewise at the center of the country’s malaise.

The worst-case scenario is a bank a run across the Eurozone as depositors scramble to move their capital out the region to avoid a Cyprus-like scenario. This potentially carries the risk of regional credit crunch, which could raise questions about the solvency of some weaker lenders. If one were to topple, a global crisis akin to the fall of Lehman Brothers would not be out of the question. Looking ahead, S&P 500 index futures are pointing sharply lower, hinting sentiment is likely to remain under pressure as Wall Street comes online.

WTI Crude Oil (NY Close): $93.45 // +0.42 // +0.45%

Prices are turning lower from resistance at 93.69, the 50% Fibonacci retracement, with sellers testing below the 38.2% level at 92.66. A confirmed break below this boundary on a daily closing basis exposes the 23.6% Fib at 91.39.

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Commodities_Crude_Oil_Sinks_on_Cyprus_Bank_Levy_Gold_Treading_Water_body_Picture_3.png, Crude Oil Sinks on Cyprus Bank Levy, Gold Treading Water

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1591.95 // +1.75 // +0.11%

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_Crude_Oil_Sinks_on_Cyprus_Bank_Levy_Gold_Treading_Water_body_Picture_4.png, Crude Oil Sinks on Cyprus Bank Levy, Gold Treading Water

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.77 // -0.05 // -0.17%

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_Crude_Oil_Sinks_on_Cyprus_Bank_Levy_Gold_Treading_Water_body_Picture_5.png, Crude Oil Sinks on Cyprus Bank Levy, Gold Treading Water

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.520 // -0.016 // -0.45%

Prices are sinking to test support at 3.416, the 50% Fibonacci expansion. A break below that exposes the 61.8% level at 3.378. Near-term resistance is marked by recent swing highs at 3.575 and 3.601.

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Commodities_Crude_Oil_Sinks_on_Cyprus_Bank_Levy_Gold_Treading_Water_body_Picture_6.png, Crude Oil Sinks on Cyprus Bank Levy, Gold Treading Water

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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