21st January Oil and Gold outlook
21st January 2010
Commodity Overview
Focus on Oil & Gold
Over the last five days Oil futures have given up more ground reaching new yearly lows at $76.76. This weakness has come on the back the stalling equity market and continuing USD strength.
Thoughts from the trading floor
From a technical perspective Oil continues to look more bearish as an attempt to regain ground last week was quickly snubbed out by resistance at $79.00. The consolidation which is currently occurring around the $77 mark could easily produce a bear flag formation which if successful could send the market through support at $76.17 and onto the $74.90 level. This being said it is still too early to say that Oil has topped as we could be seeing yet another pullback in what has been a relentless up move. A break above $83.97 would most likely see a test of what is a very significant level at $85.95 with resistance above here lying at $90.99.
As Oil has a good inverse correlation with the USD it is worth considering the major Euro cross. Over the last couple of day we have seen considerable USD strength that has pushed the cross through a flag formation. The target of this is 1.3361 and if it were to get anywhere near here it would certainly be accompanied by Oil weakness.
Last night the American Petroleum Institute reported that US inventories fell 1802K barrels last week. This compares to the analysts estimate for the DOE number of a 2400K barrel rise. The API Gasoline showed a build of 2000K apposed to the estimates for the DOE number of 667K. It is worth taking note of the significant discrepancy between the API and DOE survey numbers for oil inventories. There is little doubt traders will have taken this into account when considering the DOE release, so a higher than expected number would be met with a larger reaction.
Gold has held up relatively well in the last few days in the face of USD strength but it does appear to have formed a daily bear flag. Last night it closed below the trend line which currently is at $1118.50, if some momentum can be achieved over the next few days a significant down leg looks likely. The target of this formation is around $960 although daily support lies at $1075, $1028 and $987.
Bull View
Bulls will be keen to reclaim the $80 level on the way to challenging 2010 highs at $83.97. New highs in the equities accompanied by USD weakness would undoubtedly aid their position.
Bear View
Bears will like the look of the technical setup in the EUR/USD, and will hope this can help the Oil push below its recent consolidation zone. A break of $76.17 may act at a trapdoor for a swift leg down.
Futex View
We believe that the USD will continue to strengthen over the next few weeks and as it does so Oil and Gold will continue to move lower. An Oil target of around $73 appears reasonable in the short term.
