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Gold and Oil Caught Between Fed Taper Bets, Syria Risk

Ilya Spivak

Talking Points

  • Commodities Look for Direction Amid Competing Market Themes
  • Gold and Silver May Rise on Dovish Comments from Fed’s Williams
  • Syria-Linked Headline Risk a Potent Wild Card for the Markets

Commodity prices are little-changed in early European trade as investors weigh up a supportive set of Chinese trade figures released over the weekend, a possible Western intervention in the conflict in Syria and lingering speculation surrounding the Fed’s intention to reduce its “QE3” stimulus effort. China reported that exports rose 7.2 percent year-on-year in August, marking the largest increase in four months and topping forecasts calling for a 5.5 percent increase.

The release sent Asian bourses higher but Europe has been reluctant to follow as the US Senate begins the process of setting up for a vote on the resolution to authorize the use of force in Syria amid allegations of chemical weapons use. The markets are worried that outside involvement could widen the scope of the conflict and destabilize the Middle East at large, disrupting oil shipments and undermining the global recovery. US President Barack Obama will be making the rounds on major news outlets before a major speech on Tuesday where he will make the case for military involvement.

Betting on Fed policy likewise continues with just over a week left before this month’s FOMC meeting. All eyes will be on a scheduled speech from San Francisco Fed President John Williams. While Williams is not a member of the rate-setting committee this year, his comments amount to the last bit of “fed-speak” before officials sit down to hash out where they will take policy this month. An initial cutback of asset purchases seems all but priced-in at this point, putting the spotlight on what is likely to happen thereafter.

If Mr Williams adopts a dovish tone that is perceived as arguing against a sustained stimulus reduction cycle through the year-end, this is likely to boostprecious metals and growth-geared commodities (crude oil, copper)amid a pickup in risk appetite. Needless to say, a hawkish outing stands to yield the opposite dynamic. S&P 500 futures are pointing higher ahead of the opening on Wall Street, arguing in favor of the risk-on scenario. The Syria situation is a wild card however, with markets highly sensitive to headline risk and prone to knee-jerk reversals that threaten to undermine familiar trading patterns.

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CRUDE OIL TECHNICAL ANALYSIS Prices are testing resistance in the 109.66-110.32 area, marked by the February 2012 closing high and the 50% Fibonacci expansion. A break above that exposes the 61.8% level at 112.23. Near-term support is at 108.40, the 38.2% Fib, followed by the 23.6% expansion at 106.04.

Commodities_Gold_Oil_Caught_Between_Fed_Taper_Bets_Syria_Risk_body_Picture_3.png, Gold and Oil Caught Between Fed Taper Bets, Syria Risk

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS The formation of a Bullish Engulfing candlestick pattern above support marked by the bottom of a rising channel set from late June hints at gains ahead. Initial resistance is at 1396.41, the 23.6% Fibonacci expansion, with a break above that exposing the 38.2% level at 1419.89. Channel support is now at 1363.03.

Commodities_Gold_Oil_Caught_Between_Fed_Taper_Bets_Syria_Risk_body_Picture_4.png, Gold and Oil Caught Between Fed Taper Bets, Syria Risk

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS Prices remain wedged between falling trend line resistance-turned-support and the 38.2% Fibonacci retracement at 24.75. A break above resistance exposes the 50% level at 26.78. Trend line support is now at 22.70, with a reversal back beneath that eyeing the 23.6% Fib at 22.25.

Commodities_Gold_Oil_Caught_Between_Fed_Taper_Bets_Syria_Risk_body_Picture_5.png, Gold and Oil Caught Between Fed Taper Bets, Syria Risk

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSISPrices pulled back as expected, finding initial support at 3.233 marked by the 38.2% Fibonacci retracement. A further push beneath that eyes the 50% level at 3.186. Near-term resistance is at 3.313, followed by a major triple top at 3.378.

Commodities_Gold_Oil_Caught_Between_Fed_Taper_Bets_Syria_Risk_body_Picture_6.png, Gold and Oil Caught Between Fed Taper Bets, Syria Risk

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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