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Talking Points
- Crude Oil Looks to EU Summit Outcome for Direction Cues
- Gold Holds on to Safe-Haven Role Amid Macro-Level Jitters
WTI Crude Oil (NY Close): $98.14 // +0.64 // +0.66%
Prices continue to track broad-based risk appetite trends, putting the spotlight on the EU leaders’ summit set to begin in Brussels. Sentiment got a bit of a boost overnight amid news of a Franco-German agreement on a plan for Greece ahead of the sit-down, but putting out the fire in the Mediterranean country in isolation seems hardly enough to calm investors.
Indeed, Greece is nearly an afterthought now that fears of real contagion in larger countries like Spain and Italy – both arguably too big to be bailed out via the existing EFSF rescue fund – are beginning to play out. With that in mind, the most important takeaway from today’s meeting will be the scalability of any Greek arrangement for other ailing countries. A one-off plan that addresses none of the vulnerabilities elsewhere in the region is likely to be met with disappointment by the markets, sinking confidence and – by extension – the WTI contract.
Later in the session, the earnings calendar and a second-tier set of US economic data releases will enter into the picture. A hefty 21 S&P 500 companies are set to report second-quarter results. So far, the ratio of positive surprises on headline profits readings to negative ones is outpacing the first quarter, suggesting the reporting seasons has broadly supportive implications for risk appetite, but disappointing news from Europe will almost certainly overshadow that. Meanwhile, July’s Philadelphia Fed business confidence survey is expected to post a bit of an improvement.
Technical considerations are broadly bearish. Prices put in a Doji candlestick below resistance at $99.22, the 38.2% Fibonacci retracement of the drop from the early May swing high, hinting a move lower may be ahead. The setup reinforces the likelihood of a forming Ascending Triangle chart pattern, arguing for bearish continuation. A break through triangle support at $95.50 initially exposes $94.13 and $92.51.
Spot Gold (NY Close): 1600.50 // +12.05 // 0.76%
Gold rebounded as the bipartisan “Gang of Six” deficit-reduction plan endorsed President Obama yesterday began to lose some its luster amid fears the tax hikes it included would not pass a vote in the House of Representatives. Fears that the initiative is too ambitious given the proximity of the August 2nd deadline to raise the debt ceiling also circulated across the newswires. Needless to say, this propped up safe-haven demand for yellow metal after yesterday’s selloff.
Looking ahead, the beginning of debate on the conservative “cut, cap and balance” deficit-reducing initiative that passed the House earlier this week is set to begin in the Senate, but Obama’s pledge to veto it even if it passes strong Democrat opposition means its fate from here is largely moot. With that in mind, uncertainty is back in play, with the tone of headlines crossing the wires on the issue largely in charge of where gold is heading over the near term.
Clearly, the outcome of the EU leaders’ summit is also of note. Prices have tracked closely with periphery Euro Zone credit-default swap (CDS) spreads, meaning a disappointing outcome from Brussels is likely to prove supportive for gold prices, and vice versa. Finally, a strong showing on the earnings front may dampen QE3 expectations, sapping demand for gold from investors looking of an inflation hedge, but this seems somewhat secondary given the macro-level issues playing out at present.
On the technical front, prices rebounded from support lines at $1578.82, the 23.6% Fibonacci retracement level, having taken out rising channel support that upheld the rally since the beginning of the month. The move appears corrective, with a push above the July 19 high at $1609.95 needed to neutralize near-term selling pressure. A resumption of bearish momentum that clears current support initially exposes $1559.56. Longer-term positioning remains broadly bullish.
Spot Silver (NY Close): $40.04 // +0.98 // +2.50%
As before, the key drivers of silver price action continue to mirror those of gold, with the central focus on the EU leaders’ summit and the evolving US deficit-reduction impasse. Prices remain locked in consolidation below resistance at $41.06, but the presence of a Bearish Engulfing candlestick pattern suggests the path of least resistance favors the downside. A break below initial support at $39.01 exposes downside targets at $37.17 and $36.29.
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