Oil
It is getting ugly out there and despite a backdrop of geopolitical risks that could squeeze supplies, the latest trade war threats from China could cripple global growth and thus take down oil prices. West Texas Intermediate crude is down 2.1% off its worse levels, while Brent’s decline is closer to 1.6% as no end appears in sight for the trade war. Crude is falling through key support levels and is quickly erasing the effects of the OPEC + production cuts. WTI’s end of year rally to mid-April has seen price give back roughly 40% of those gains.
US stockpiles are expected to decline this week, but that may not matter if we do not see some constructive news that trade talks between the two largest economies are poised to resume. The oil market and all risk assets remain very vulnerable here and we should not be surprise if we see another 5% lower across on the board on further risk aversion flows.
West Texas Intermediate crude is tentatively below the 100-day SMA, which trades at $58.29. Consecutive daily closes below this level could see further downward momentum target $54.48, which is the 50% Fibonacci retracement of the Christmas eve low to April high.
Gold
Gold rises on trade angst but remains the least preferred safe-haven as investors flee to bonds. The yellow metal has delivered limited gains on growing recessionary concerns, but that could change on the break of $1,300 an ounce. The dollar’s run will also hamper gold, but we could see that be coming to an end, or at least a break, when the Fed admits the recent dip with inflation was not transitory. Rate cuts are priced in by the financial markets, the Fed just needs to capitulate.
The precious metal is also seeing key resistance from the 50-day SMA at 1,290.60. To the downside, the 200-day SMA which is at 1,260.20 remains key support.
