Crude Oil Sinks, Gold Finds Support on Dismal Eurozone GDP

DailyFX

Crude oil fell amid risk aversion but gold rose on an increased chance of the ECB joining global stimulus efforts in the wake of dismal Eurozone GDP figures.

Talking Points

  • Crude Oil, Copper Sold as Eurozone GDP Slump Sinks Risk Appetite
  • Gold and Silver Rise as European Recession Boosts ECB Easing Hopes

Crude oil and copper prices are following European stocks lower amid a broad-based unwinding of risk appetite in the wake of a disappointing roundup of fourth-quarter Eurozone GDP figures. The region-wide composite gauge showed output shrank 0.6 percent, a larger decline than economists’ predicted 0.4 percent contraction. The result marked the worst reading since the 2.8 percent drop recorded in March 2009 in the heart of the Great Recession. Cumulatively, the single currency area adds up to the world’s second-largest economy and increasingly acute weakness there bodes ill for global output at large, hurting cycle-sensitive commodities. S&P 500 futures are pointing sharply lower, hinting at more of the same as Wall Street comes online.

Gold and silver are pushing higher in a move that seems to reflect the implications of soft Eurozone GDP data for ECB monetary policy. Mario Draghi and company have shown significantly more restraint than their counterparts at banks including the Fed and BOJ. Indeed, 3-year LTRO repayments have actually producing a sort of tightening, shrinking the ECB’s balance sheet to the smallest in a year. Deepening recession may nudge the bank toward introducing added accommodation as an offset (in fact, policymakers alluded to just such an outcome in their monthly bulletin), broadly expanding global reflation efforts and boosting anti-fiat assets.

WTI Crude Oil (NY Close): $97.01 // -0.50 // -0.51%

Prices rebounded from support at 95.14, the 23.6% Fibonacci retracement, to challenge resistance is in the 98.02-21 area (marked by the 23.6% Fib expansion and the January 30 high). A break above that exposes the 38.2% expansion at 99.91. Alternatively, a reversal below 95.14 initially targets the 38.2% retracement at 93.24.

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Commodities_Oil_Sinks_Gold_Finds_Support_on_Dismal_Eurozone_GDP_body_Picture_3.png, Crude Oil Sinks, Gold Finds Support on Dismal Eurozone GDP

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1642.55 // -8.60 // -0.52%

Prices broke critical rising trend line support set from mid-May 2012 and took out the 38.2% Fibonacci expansion (1648.20). Sellers now aim to challenge the 50% mark at 1633.06, with a push beneath that aiming for the 61.8% Fib at 1617.93. The 1648.20 level has been recast as near-term resistance. A reversal back above that eyes the trend line (now at 1661.30) anew.

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Commodities_Oil_Sinks_Gold_Finds_Support_on_Dismal_Eurozone_GDP_body_Picture_4.png, Crude Oil Sinks, Gold Finds Support on Dismal Eurozone GDP

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

Spot Silver (NY Close): $30.78 // -0.33 // -1.06%

Prices broke through support at 31.24, marked by the 23.6% Fibonacci expansion. Sellers now target the 38.2% expansion (30.48), with a push below that aiming for the 50% Fib (29.87). The 31.24 level has been recast as near-term resistance, with a reversal above that aiming for the underside for a formerly broken rising channel at 31.44.

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Commodities_Oil_Sinks_Gold_Finds_Support_on_Dismal_Eurozone_GDP_body_Picture_5.png, Crude Oil Sinks, Gold Finds Support on Dismal Eurozone GDP

Daily Chart - Created Using FXCM Marketscope 2.0

Want to learn more about RSI? Watch this Video

COMEX E-Mini Copper (NY Close): $3.742 // -0.002 // -0.05%

Prices are turning lower as expected after putting in a Shooting Star candle below resistance at the top of a Rising Wedge chart pattern. Near-term support is at 3.718, the December 10 high, with a break below that aiming for the Wedge bottom at 3.699. The formation’s topside barrier is now at 3.792.

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Commodities_Oil_Sinks_Gold_Finds_Support_on_Dismal_Eurozone_GDP_body_Picture_6.png, Crude Oil Sinks, Gold Finds Support on Dismal Eurozone GDP

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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