Oil and Gold rally, Bitcoin sinks, in Asia

Oil rallies in Asia after overnight sell-off.

Oil, along with commodities in general, was crushed in the overnight session as China-driven risk aversion fears swept markets. Brent crude fell by 1.45% to $74.20, and WTI fell by 2.05% to $70.40 a barrel. Sentiment has improved in Asia today though, with the commodity space rallying generally, as dip-buyers appear after yesterday’s sell-off. Brent crude and WTI have added 0.50% to $74.55 and $70.80 a barrel respectively.

Although prices have recovered in Asia, I suspect that short-term sentiment remains fragile as it is elsewhere and is vulnerable to headline driven moves. A series of lower daily highs on both contracts suggests that we could still see more downside pressure ahead of China returning tomorrow, and with it, hopefully more clarity surrounding its intentions for Evergrande.

Brent crude has resistance between $75.50 and $76.00 a barrel with support at $73.50 a barrel. With sentiment fragile generally, a deeper correction to $72.00 a barrel, home to its 50 and 100-day moving averages (DMAs), cannot be ruled out. WTI has resistance between $72.00 and $73.00 a barrel, a congestion zone of daily highs. It has support initially at its overnight low at $69.90 a barrel. Like Brent crude, losses could extend to its 50 and 100-DMAs at $69.45 a barrel.

Gold loves a crisis.

Gold stabilised overnight as the risk aversion wave sweeping financial markets, finally gaining some haven tailwinds which lifted it to a positive close in New York. Gold finishing the session 0.55% higher at $1764.00 an ounce. In Asia, the tentative rally in commodities and equities has seen gold fade slightly to $1762.00 an ounce.

Depending on how the Evergrande situation plays out with markets, gold could continue finding safe-haven buyers, or buying interest could evaporate once again as quickly as it appeared, particularly if the China government soothes nerves when China returns to work tomorrow. Either way, if the FOMC gives concrete guidance on a tapering timeline at Wednesday’s meeting, gold will resume its downward direction, as the former would inevitably lead to a stronger US Dollar.

Gold continues to have resistance just above at $1770.00, followed by the far more formidable $1780.00 an ounce region. Even if risk sentiment remains negative, it is hard to see gold recapturing the latter. Gold has support at $1742.00, followed by $1720.00 an ounce, followed by longer-term support in the $1675.00 region. Given gold’s recent price action, its path of least resistance remains lower despite the temporary respite.

Bitcoin isn’t happy.

Bitcoin has fallen nearly 11.0% over the past 24 hours, as risk aversion elsewhere saw the blockchain herd stampede towards a very small exit door. This kind of behaviour is typical in the crypto space where liquidity evaporates causing strong directional moves, up or down before the haters start.

Crypto’s has a few headwinds to contend with overnight. President Erdogan of Turkey said he was at war with them. Meanwhile, Coinbase acceded to SEC pressure and pulled its allegedly US Dollar backed un-stable coin lending offering.

Bitcoin has seen off a bearish pennant formation last week and looked ready to resume its rally through $50,000. However, yesterdays massive tumble saw it plummet through two-month support at $44,450.00, crashing as low as $40,200.00 before recovering to $42.400.00 in Asia.

Like gold, Bitcoin’s rally looks like a dead cat bounce, and it remains vulnerable to more disorderly sell-offs in the current environment. The breakout point at $44,450.00 is initial resistance and it needs to recapture this quickly to restore confidence. The 100-DMA at $40,800.00 held on a daily basis overnight and forms a zone of support with $40.000,00. A failure of $40,000.00 on a closing basis signals a potential capitulation to $30,000.00.

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