Oil retreats, gold unchanged

Big ranges and big losses for oil

Oil markets were crushed overnight as the crypto market fallout spread to asset classes with large amounts of speculative longs. There were clearly more than I thought still long of oil as Brent crude fell three dollars at one stage to USD65.30 a barrel, before bouncing slightly. WTI fell even more to USD62.00 a barrel, before recovering, and its technical picture looks somewhat darker.

Brent crude finished lower by 2.75% at USD66.35 a barrel, recovering slightly to USD66.75 a barrel in cautious Asian trading. WTI collapsed by 2.90% to USD63.45 a barrel, also rising somewhat to USD66.55 a barrel in Asia.

Brent crude has resistance at yesterday’s highs of USD68.40 a barrel, with support at the overnight low at USD65.30 a barrel. Failure risks a test of significant support at v64.40 a barrel and a crypto-like wipe-out of speculative longs. WTI’s overnight collapse fell through the base of its two-month upward channel at USD64.00 a barrel, which becomes initial resistance. The overnight low at USD62.00 is the first support, followed by USD60.65 a barrel. Failure of the latter support risks a capitulation sell-off through USD60.00 a barrel. From a technical perspective, WTI really needs to recapture its upward channel quickly.

With nerves on edge in oil markets and elsewhere, tonight’s official US Crude Inventory data will assume a greater than normal importance. The noise around a possible US/Iran deal is increasing, and with risk sentiment turning south, that threatens to weigh more heavily on oil prices than previously. The risks have notably shifted to capitulation sell-offs in the last 24 hours.

Gold: A 40 dollar range but unchanged

Gold traded in a near 40 dollar range overnight between USD1852.00 and USD1890.00 an ounce. The spillover from the cryptocurrency meltdown weighed on gold for a while, before an on-message FOMC minutes saw it rally back to finish unchanged at USD1869.50.

Although gold failed in its challenge on USD1900.00 an ounce, bullish investors can take heart that gold weathered a general risk sell-off and a slight rise in the US yield curve overnight. Gold has resumed its recovery in Asia, rising 0.40% to USD1877.00 an ounce, another positive indicator that gold’s rally still has legs. Bitcoin has recovered this morning quite impressively, which appears to be lifting gold prices as well. If cryptos and gold are about to start trading on a correlated basis, we should gird ourselves for much higher intra-day volatility.

Gold has support at USD1852.00 an ounce, the overnight low, followed by support at USD1845.00 an ounce. That is a series of previous daily highs and the 200-DMA. Only below this region is gold’s bullish outlook called into question. Resistance is at the overnight higher at USD1890.00 an ounce, followed by USD1900.00 and then USD1920.00 an ounce.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley