Oil continued to drift lower on holiday-thinned volumes, spooked in part, by Saudi Arabia lowering its crude prices to international customers. The drift lower though, should be taken with a grain of salt until the US arrives back at its desks this afternoon.
That said, the technical picture is starting to look ominous for oil. Brent crude fell 0.70% to USD42.00 a barrel overnight, having tested two-month support at USD41.40 a barrel overnight. A loss of this level this afternoon implies deeper losses with an initial target of USD39.35, its 100-day moving average. (DMA)
WTI fell by 0.90% overnight to USD39.10 a barrel, having tested support at USD38.60 a barrel in thin trading. A move through the overnight lows sets WTI up for further losses, initially targeting its 100-DMA at USD36.35 a barrel.
With immediate supply plentiful, worries over wavering OPEC+ compliance, a glut of speculative long positioning in the market, and the respective relative strength indexes not yet in oversold territory, the risks of a deeper downward correction remain the path of least resistance.
Gold’s consolidation continues, but downside risks increase
Gold eased lower by 0.30% to USD1928.00 overnight, with volumes thin due to the US market holiday. Nevertheless, the pattern of the past five trading sessions has been one of lower highs each day with almost unchanged closes.
Gold appears set to test its two-month support region between USD1900.00 and USD1920.00 an ounce. The jury is out though on whether additional downside risks remain. Investors are content not to chase the market and pick up gold on dips. Gold is also lacking strong downside momentum, even if the rallies are shallow in scope. Realistically, any further downside will require a spike in the US dollar and a deeper sell-off of stocks on Wall Street. At this stage, that is a known unknown.