9th December Commodity overview
9th December 2009
Commodity Overview
Focus on Oil & Gold
Over the last five days we have seen oil give up over $5 of gains as USD strength has come to the forefront on the back of strong payrolls data. The same reasoning can be used to explain a near $100 pullback in the price of Gold off recent highs.
Thoughts from the trading floor
From a technical perspective oil futures look a lot less bullish than a week ago. The break back below support at $75 for the second time in a week makes the likelihood of a successful flag break to the upside unlikely. A positive sign for bulls was that it held above the previous swing low at $72.39, a break of here would most likely signal a push lower with support seen at $68.94 and then $65.05. If the market is to re-challenge this years highs it will have to first break back above $74.96, this level could prove pivotal over the next couple of weeks. Overall we believe Oil futures are technically weakening and we may be seeing the formation of a technical reversal pattern.
Last night the American Petroleum Institute reported that US inventories fell 5815K barrels last week. This compares to the analysts estimate for the DOE number of a 250K barrel rise. The API Gasoline showed a drawdown of 753K apposed to the estimates for the DOE number of +1600K. In past occasions when we have seen such a large discrepancy between the API number and DOE expectations we have seen the market has moved prior to the number as traders try to anticipate the release. This provides a short term trading opportunity but it is important to note the biggest moves off the headline number have come when it has been at odds with the API.
Gold has suffered in the last few days as a flight into USD has resulted in significant weakness. From a technical perspective Gold is at a pivotal point, it is currently trading around support at $1130 and although it dipped below here yesterday it managed to close above. Interestingly an hourly head and shoulder formation has formed with a neckline around $1135, if this was to break it would have roughly a $100 target and is worth considering over the next few days.
Bull View
Oil bulls will be keen to get the market back above $74.96 as this would open the door for another push higher. Their number one concern will be the USD continuing to strengthen.
Bear View
Bears will feel they now have an opportunity of a turnaround, they will be targeting a break of support at $72.39 which will allow them to challenge support around $69.
Futex View
We believe that Oil and Gold markets are still strongly linked to the USD performance and this will provide the best indicator of performance. We do expect that the USD will strengthen over the next few months but some patience in the next couple of weeks may be required.
