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Commodities: Crude Oil, Gold Look to US House Vote for Direction
Crude oil and gold may rise as the US House of Representatives votes to suspend the “debt ceiling” through mid-May but follow-through is likely to be limited.
Talking Points
Commodities Tread Water as Markets Wait US House Vote on Debt Ceiling
Risk Appetite Boost from Fading US “Default” Fears May Prove Fleeting
Commodities are treading water in early trade, reflecting standstill on the risk sentiment front ahead of a vote in the US House of Representatives to suspect the federal spending limit (the so-called “debt ceiling”) until the May 19. This would allow the US Treasury to continue to borrow at whatever pace necessary to accommodate its liabilities until that time. The newswires report that the move is intended to refocus the debate in Washington, DC on the “sequester” spending cuts initially intended to trigger with the “fiscal cliff” in January and pushed out until March 1.
On balance, a decision to delay a tussle on the debt ceiling may yield a small pickup in risk appetite (and by extension in commodities) because the threat of a pseudo-default will be reduced for now. This will relieve investors worrying about the difficult-to-forecast implications of a US that is technically unable to borrow not because the market will not lend to it (a “real” default) but because of a self-imposed legislative restriction.
Crucially, failure to raise the debt ceiling would say less about the creditworthiness of the US than it would about the intractable deadlock on the political front, particularly at a time when swift policymaking is so critical. With that in mind, any boost to risk appetite from delaying the decision may be temporary at best. Indeed, delaying the fight seems hardly encouraging considering it does little to resolve the issue, merely shifting the spotlight to a different venue (the “sequester” battle) where Congress’ factitious state may be put on display.
WTI Crude Oil (NY Close): $96.68 // +0.64 // +0.67%
Prices continue to drift higher after taking out support-turned-resistance at 94.61. Near-term resistance is now at 98.21, marked by the top of a rising channel set from mid-December 2012. A break above that aims for the September 14 2012 close at 98.99. Near-term support is now in the 94.61-90 area.
Daily Chart - Created Using FXCM Marketscope 2.0
Spot Gold (NY Close): $1692.70 // +2.65 // +0.16%
Prices narrowly edged above resistance at 1690.39, the 38.2% Fibonacci retracement, exposing the 50% level at 1710.37. This is reinforced by a falling channel top, now at 1707.40. A push above 1710.37 targets the 61.8% Fib at 1730.35. The 1690.39 mark has been recast as support, with a reversal back below that eyeing the 1650.74-57.35 area.
Daily Chart - Created Using FXCM Marketscope 2.0
Want to learn more about RSI? Watch this Video
Spot Silver (NY Close): $32.24 // +0.23 // +0.72%
Prices are testing resistance at 32.41, the 61.8% Fibonacci retracement level. A break above that aims for the 76.4% level at 33.17. Near-term support is at 31.80, the 50% Fib. A reversal back below that targets the 38.2% retracement at 31.19.
Daily Chart - Created Using FXCM Marketscope 2.0
Want to learn more about RSI? Watch this Video
COMEX E-Mini Copper (NY Close): $3.706 // +0.026 // +0.71%
Prices broke above resistance at 3.689, the 38.2% Fibonacci expansion, exposing the 50% level at 3.717. A break above that targets the 61.8% Fib at 3.745. Alternatively, a reversal below support aims for the 23.6% expansion at 3.655.
Daily Chart - Created Using FXCM Marketscope 2.0
--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com
To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak
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