Talking Points:
- Gold prices remain capped below $1400/oz figure
- Crude oil prices eyeing support below $42/barrel
- USD/JPY surge puts commodities under pressure
A sharp surge in USD/JPY is echoing US Dollar strength across the financial markets and weighing on commodities denominated in terms of the benchmark currency. Gold prices are trading inversely of the greenback’s value against the Yen with near-perfect precision. Meanwhile, crude oil prices are diverging from broader sentiment trends, with the WTI contract under pressure even as shares prices march higher.
The Japanese unit sank on back of results from an election over the weekend that gave Prime Minister Shinzo Abe a mandate to pursue expansionary fiscal policy. This bolstered risk appetite – weighing on the standby anti-risk currency – while highlighting public support for Abe’s inflationary economic policy platform. S&P 500 futures are pointing decidedly higher ahead of the opening bell on Wall Street, hinting at more of the same in the hours ahead.
With that said, it remains to be seen whether the greenback will be able to sustain upside follow-through. The currency has reclaimed its safe-haven credentials in the aftermath of the Brexit referendum outcome to trading inversely of the MSCI World Stock index (a proxy for market-wide sentiment trends) in recent weeks. With priced-in Fed policy bets implying a rate hike is delayed until 2018, risk appetite is likely to remain as the most potent catalyst for USD price action.
If risk appetite continues to swell, investors may well turn away from the Dollar in favor of higher-yielding alternatives. Furthermore, heretofore haven-seeking capital flows buoying the buck may reverse course and undermine momentum. This may cap losses for commodities, at least in the near term.
Track key short-term gold and crude oil price levels with the GSI indicator!
GOLD TECHNICAL ANALYSIS – Gold prices are treading water having hit resistance below the $1400/oz figure. A break below support at 1338.68, the 76.4%Fibonacci expansion, targets the 61.8% level at 1321.75. Alternatively, a daily close above the 100% Fibat 1366.04sees the next upside barrier at1393.40, the 123.6% expansion.
CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices are probing lower after breaking past the 23.6% Fibonacci retracementat 45.60. A daily close below the 38.2% level at 41.86 exposes the 50% Fib at 38.84. Alternatively, a move back above 45.60 targets falling trend line resistance at 48.85.
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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