FMOC sends oil, gold lower

Oil weathers the FOMC storm

Oil’s strong fundamentals continue to support prices and limited post-FOMC losses overnight. Futures markets remain in backwardation, signalling strong physical demand, and official US Crude Inventories fell by an above expected 7.355 million barrels overnight.

Brent crude tested USD75.00 a barrel overnight before retreating on the FOMC surprise and finishing 0.50% lower for the day at USD73.85 a barrel. WTI tested USD73.00 a barrel before suffering a similar fate, finishing just 0.10% higher atUSD71.70 a barrel. Prices are hardly changed in Asia, with both contracts rising 0.10% as markets digest the implications of the FOMC meeting outcome.

However, although oil’s fundamentals remain firm, both contracts are now vulnerable to a potentially sharp downward correction to cull excessive speculative longs in the shorter term, especially if we are about to see a period of US dollar strength. The Relative Strength Indexes (RSIs) on both contracts have remained in overbought territory. The daily RSI is usually a good indicator of intra-trend corrections when it reaches extreme levels.

Brent crude still has USD75.50 and USD78.00 in its sights, but a fall through USD72.80 could signal a drop extending as far as USD71.00 a barrel. WTI has resistance at USD75.50, and failure of USD71.00 could see USD70.00 a barrel retested. Any abrupt sell-off is likely to be violent but short in duration.

Gold crushed under the foot of the FOMC

Gold was crushed overnight by a more hawkish FOMC, leading to fears that US bond yields would rise. Gold fell by over 2.50%, carving through its 200-day moving average at USD1840.00, highlighting the extent of speculative long positioning in the market. It also highlighted gold’s sensitivity to a higher US dollar and US rates.

Gold has staged a modest recovery in Asia, rising USD9.00 an ounce to USD1822.00 an ounce, but the rally looks more like speculative dip buying and fast money short-covering than a vote of confidence in the yellow metal. This morning’s minuscule recovery by gold should be approached cautiously, as we have yet to see how a change in tone from the Federal Reserve will fully play out in markets.

Gold’s next critical support is the 100-day moving average at USD1797.50. A daily close below there will signal a deeper correction is in the prospect that would initially target USD1760.00 an ounce. Resistance lies at its 200-DMA today at USD1839.50 an ounce. Gold will likely gyrate in a choppy range between USD1815.00 and USD1825.00 over the Asian session.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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
Jeffrey Halley

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