Oil, gold fall as dollar shines

Oil’s speculative long culling continues

Oil markets retreated sharply overnight as a stronger US dollar and falling commodity prices elsewhere, saw the overbought technical correction continue. Brent crude fell 1.15% to USD73.00 a barrel, having tested USD72.00 intra-day. WTI fell by 0.85% to USD71.05 a barrel, having tested USD70.00 intraday.

The technical picture, notably the overbought RSI’s, now looks much more balanced, although the culling of speculative long positions continues in Asia, with both contracts easing by 0.50% to USD72.50 and USD70.50, respectively. We may well see another day or two of oil weakness, but I expect oils underlyingly bullish fundamentals to reassert themselves. Oil futures curves remain in backwardation and the global recovery, notably in key economies, remains on track. The change in language by the FOMC is an endorsement of that view.

Brent crude has initial support at USD72.00 a barrel, the overnight low followed by USD70.50, with resistance at USD73.00 and USD74.50 a barrel. WTI has support at USD70.00 and USD68.50 a barrel, with resistance at USD71.10 and USD72.30 a barrel.

Gold’s week of pain continues

Gold had another grim session overnight as US dollar strength squeezed out more speculative long positions and saw gold break more critical support levels. Gold fell 2.13% to USD1778.00 an ounce, carving through technical support at USD1800.00 and then its 100-DMA at USD1798.00 an ounce. This zone should now cap gold gains into the end of the week.

Gold has managed to rally 0.55% to USD1783.00 an ounce on short-covering in Asia, but the bounce looks corrective and lacks momentum. Some solace for bullish investors might be on the horizon though, the Relative Strength Index (RSI) has plummeted from overbought levels. It is now flirting with oversold territory, and a move towards support at $1760.00 an ounce would send it into extreme oversold territory.

With that in mind, gold will likely find more sturdy support going forward if it moves towards USD1760.00 an ounce. Any further falls below that likely represent an attractive shorter-term buying opportunity. In the bigger picture, gold’s correlation to the US dollar is undeniable, and rallies will be limited to the USD1840.00 region into next week unless the US dollar abruptly changes direction.

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