Oil drops on China, gold extends losses

Oil falls on weak China PMIs

Oil prices edged lower on Friday as investors reduced risk into the weekend, and upward momentum continued waning. Nagging doubts over the delta variants impact on world growth and a stronger US dollar weighed on Brent crude prices. Brent crude fell 0.90% to USD 75.15 a barrel, while WTI finished just 0.30% higher at USD 73.60 a barrel.

In Asia today, weak China and regional Asian Manufacturing PMIs increasing virus cases on the China mainland and expanding lockdowns in Australia have weighed on prices. Reports that OPEC+ compliance had eased to 115%, not helping matters either. Brent crude and WTI are around 0.60% lower at USD 74.70 and USD 73.30 a barrel, respectively.

In the bigger picture, the price action continues to look consolidative after oil recovered all of its panic “delta-dip” the week before last. Last week saw the rebound consolidate, and after a week of range-trading, unsurprisingly, upside momentum has begun to wane. That leaves both rant and WTI vulnerable to a corrective move lower to wash out stale longs. However, I am not expecting anything like the “delta-dip”, and any material fall in prices is likely to be met by an equally fast rebound.

Brent crude has resistance at USD 67.00 a barrel with support at USD 74.00 a barrel. Failure targets a fast return to USD 72.00 a barrel before recovering. WTI has resistance above USD 74.00 a barrel with interim support at USD 73.00, followed by USD 72.00. Failure could see a quick spike to retest USD 70.00 a barrel before recovery occurs.

Gold is back in its range

Bullish gold traders would have been disappointed with the price action at the back end of last week. Gold has traced a triple top between USD 1833.00 and USD 1834.00 an ounce and fell heavily on Friday. US dollar strength saw gold fall 0.75% to USD 1814.00 an ounce. In Asia today, an unwinding of weekend risk hedges, with more than a few disappointed longs out there, sees gold fall by 0.35% to USD 1808.00 an ounce.

The fall by gold has moved it back into its broader July range of USD 1790.00 to USD 1820.00 an ounce. The failure of gold to hold gains in the face of even modest US dollar strength and ever falling US yields is disappointing, but as long USD 1790.00 an ounce holds on a closing basis, gold’s medium-term perspective still looks constructive. Interim support and resistance are found at its 100 and 200-DMAs at USD 1802.00 and USD 1820.00 an ounce.

If support at USD 1790.00 fails, gold could return to USD 1750.00 an ounce, potentially quite quickly. The US Non-Farm Payrolls should answer some questions regarding the US dollar’s direction on Friday. In the meantime, patience and playing the range are probably the best strategy.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was 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 and Channel News Asia as well as in leading print publications such as 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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