Oil continues to suffer recovery nerves
The weaker than expected US Retail Sales data and ensuing US dollar strength weighed further on oil prices yesterday. Confidence is being weakened anyway by softer China data earlier in the week and ratcheting fears that the Covid-19 Delta-variant will erode the pace of the global recovery, and thus, future oill demand. US API Crude Inventories dropped by 1.163 million barrels, but that seemed only to stem the negative tide, not turn it. Nor has OPEC+’s refusal to head President Biden’s call to pump more to lower prices proved supportive.
Brent crude eased 0.66% lower to $69.10 a barrel overnight, while WTI retreated by 1.25% to $66.55 a barrel. Oil prices steadied in Asia, being almost unchanged from yesterday. Notably, both contracts remained below their 100-day moving averages (DMAs), while the relative strength indexes (RSIs) remain neutral, bearish technical developments.
Brent crude has resistance at $70.00 and then the 100-DMA at USD $70.50 a barrel. That is followed by $71.35 and $72.00 a barrel. It has support nearby at the overnight low of $68.85, followed by $68.20 and then $67.50 a barrel. Failure opens a test of triple bottom support at $64.60 a barrel.
WTI has resistance at the yesterday high at $67.75, closely followed by the 100-DMA, located at $67.80 a barrel. We then have $69.60 and $70.00 a barrel. Support is nearby at the low of $66.35, followed by $65.75, and then the more critical double bottom at $65.10 a barrel. Failure opens a chasm that could target $62.00 a barrel in the sessions ahead.
Both contracts rallied intra-session yesterday, only to fail ahead of their respective 100-DMAs, reinforcing their near-term importance. Both contracts appear to be tracing out bearish pennant formations, suggesting prices could fall substantially from here. I will await today's official US crude inventory data and the FOMC minutes before finalising my thoughts on that tomorrow.
Gold shows haven resilience
Gold appears to be finally trading off something that doesn’t resemble a mechanic inverse relationship to the US dollar. Despite the greenback recording substantial gains yesterday, gold held onto all of its gains of the past few sessions, finishing only 0.06% lower at $1786.00 an ounce.
It looks like, for now, the safe-haven bid is back. Increasing nerves about the Delta variant’s impact on the global recovery is finally starting to weigh on equity markets, with at least some of those funds parked in the yellow metal. At the periphery, concerns about the transition of power in Afghanistan and its implications for regional stability may also be strengthening gold’s hand. Weaker than expected, recent China data and the impact of partial port shutdowns there on global supply chains are another tailwind.
Nevertheless, gold will face more challenges to its rally if the US dollar keeps strengthening. More importantly, if US long-dated bond yields start to rise, I doubt gold’s upward momentum will be maintained.
Some risk aversion buying is evident in Asia today, as gold firms by 0.16% to $1789.00 an ounce. However, from a technical perspective, gold faces a series of formidable resistance levels from here on up. Gold has initial resistance at the yesterday highs at $1797.00, which is also the 50-DMA. That is followed by $1800.00 an ounce and then the 100-DMA at $1807.50 an ounce, ahead of the 200-DMA at $1813.20 an ounce. After that comes before a series of daily highs, each side of $1834.00 an ounce.
Support resides at the yesterday lows around $1780.00, followed by $1770.00 and then the important pivot region at $1750.00 an ounce. Failure of $1750.00 implies a deeper retreat to $1700.00 an ounce.
Although gold has maintained its risk-aversion bid yesterday, the technical picture suggests it has a lot of wood to chop on the upside to sustain the rally’s momentum. I, therefore, maintain a cautious stance on further gold strength at these levels if the US dollar remains as firm as it is at the moment.