Oil Slides, Gold Vulnerable to USD Comeback

Profit taking kicks in as US gasoline demand falls

Oil is sliding for a second day, potentially bringing an end to weeks of consolidation and bringing about a correction in crude prices.

A decline in US gasoline demand last week from 9.16 million barrels per day to 8.78 million appears to have been the catalyst for the drop in oil prices, with other factors then compounding the losses. Impending refinery maintenance, the end of the summer driving season and Iraq seeking an extension for compensation cuts are among the factors have all been touted as reasons behind the move.

The reality is that we’re probably just looking at an exhausted recovery trade and longs are bailing. Crude has struggled to make a significant headway to the upside for weeks and the 200 day moving average in WTI and Brent is holding firm.

We’re probably just seeing some unwinding of positions and a brief correction, nothing to worry about. As far as levels are concerned, $42 and $40 in Brent look very interesting, as does $39 in WTI.

Data to deliver the knockout blow

The dollar doesn’t know when it’s beaten, with the greenback staging another recovery within days of hitting a fresh low.

The dollar index is pushing 93 and has its eyes set on the late August highs around 93.50. This isn’t good news for gold, which appeared to be finding its feet prior to the ISM PMI on Tuesday and its all been downhill from there.

US yields remain low though, probably thanks to the Fed’s assurance that rates are going nowhere any time soon even if the economy rebounds and runs hot. There’s plenty of data coming from the world’s largest economy over the next 24 hours or so. The question is, what’s getting the knockout blow, gold or the greenback?

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.