Crude Oil, Gold Prices Look to Fed Rate Decision for Guidance

By Ilya Spivak, Currency Strategist

Talking Points

• Crude Oil Recovery Underway as Risky Assets Rise Before FOMC
• Gold Selling May Resume if Optimistic Fed Scatters QE3 Hopes

WTI Crude Oil (NY Close): $97.77 // -1.64 // -1.65%

Crude oil prices are pushing higher in European trade amid a broad-based recovery in risk appetite. S&P 500 stock index futures are likewise pointing higher, promising more of the same as North America comes online. The surge in optimism appears both corrective and forward-looking as markets retrace some of yesterday’s broad-based selloff and position for the upcoming Federal Reserve interest rate decision.

US economic data has been steadily improving through the second half of the year – a fact expected to be underscored by an improvement in Retail Sales figures today – and traders will be on the lookout for acknowledgement of a firming recovery from Ben Bernanke and company. Such an announcement promises to boost hopes that an accelerating US economy will offset headwinds to global growth from elsewhere (particularly Europe), although any domestically-driven optimism from the Fed officials is sure to be tempered by lingering worries about the endgame of the Eurozone debt crisis.

On the technical front, prices are testing rising trend line support set from late October, with a break lower exposing 94.58. Near-term resistance is found at 101.80, but only a daily close above 103.35 negates the overall downside bias established by a Bearish Engulfing candlestick pattern completed on November 17.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1666.57 // -45.03 // -2.63%

Gold prices are on the upswing heading into the opening bell on Wall Street as the recovery in risk appetite weighs on the safe-haven US Dollar, offering de-facto support. While more of the same seems to be ahead, gold may break with risk appetite if a meaningfully positive streak in the FOMC policy statement proves to scatter QE3 expectations, working against the yellow metal’s appeal as an inflation hedge.

Sizing up the technical landscape, prices broke through the rising trend line set from late September as well as horizontal resistance-turned-support at 1680.55, exposing the next downside target at 1609.05. The 1680.55 level has been recast as near-term resistance.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $31.31 // -0.91 // -2.82%

As with gold, silver appears poised higher as the US Dollar pulls back amid a recovery in risky assets, but the Fed rate decision may undermine a rally if the FOMC proves to undermine QE3 expectations. Prices remain wedged between support at a rising trend line set from late-September and range resistance at 33.04. A break higher targets 35.32 while a push through support exposes the 30.00 figure.

Daily Chart - Created Using FXCM Marketscope 2.0

Courtesy: DailyFX