Oil remains immune to US dollar strength
Oil has risen this morning in Asia after Iran elected a hard-line president over the weekend. That puts any breakthrough in Iran nuclear deal negotiations in further doubt, removing some of the risks that Iranian crude will return to global markets officially, anytime soon. Adding to the supply-side risks, the interim nuclear deal extension with world powers is due to expire this week.
The Iranian election seems to have supported oil prices on Friday as well, with Brent crude rising by 0.30% and WTI climbing 0.50%. In Asia, Brent crude has rallied another 0.63% to USD73.70 a barrel, with WTI jumping 0.68% to USD71.90 a barrel.
Despite the culling of global recovery positioning evident last week across multiple asset classes, oil’s underlying physical demand picture remains positive. Despite the noise in financial markets, the real world is on the right track and will require increasing amounts of energy as it reopens. That is evidenced by the backwardation in the oil prompt futures curves. If anything, after markets elsewhere have corrected, lower interest rates should support oil prices, and more so if Iranian crude is not returning to global markets anytime soon.
Having weathered the US dollar storm last week, Brent crude should remain a buy on dips to USD72.00 and USD71.00 a barrel. Only a failure of USD70.00 a barrel tilts the medium-term technical picture to the downside. Initial resistance is at USD75.00 a barrel. WTI should find support on any dip to USD70.00 a barrel, and as long as USD68.00 a barrel holds fast. Resistance lies at USD73.00 a barrel.
Gold holds support finally
Gold had a volatile session on Friday, trading a nearly 40-dollar range between support at USD1760.00 an ounce and resistance and the 100-DMA at USD1799.00 an ounce. It finally finished the day down 0.52% at USD1764.00 an ounce. However, in Asia, it has retraced all that loss, rising 0.50% to USD1773.00 an ounce.
Notably, gold held onto critical support at USD1760.00 an ounce on Friday. That is important because the daily RSI moved into severely oversold territory on Friday. This morning, it has staged a minuscule recovery today, but is usually an excellent indicator of impending counter-trend corrective moves.
That means that in the near term, support at USD1760.00 should remain intact and that gold can stage a recovery from here to unwind the oversold RSI. That rally could once again extend to its 100-DMA at USD1798.00 and the resistance line at USD1800.00 an ounce. However, overcoming this resistance zone will be challenging if intense US dollar strength persists elsewhere. Despite gold’s performance today, any recovery rally above USD1780.00 an ounce looks like a selling opportunity rather than a bottom fishing one.