Oil wilts after US GDP
Both Brent crude and WTI sank aggressively after the US GDP release, over 5.0% at one stage, before recovering much of those losses by the end of the session. Brent crude fell to USD41.50 a barrel before recovering to close down 1.0% at USD43.00 a barrel. WTI fell to USD38.70 a barrel before recovering to close down 2.40% at USD40.40 a barrel. In holiday-thinned trading, both contracts have edged 20 cents lower in Asia.
WTI’s more negative response is unsurprising, given its greater direct exposure to the US economy. Pleasingly, both contracts managed to avoid breaking longer-term supports during the intra-day volatility narrowly. The price action overnight has likely washed out quite a bit of stale speculative long positioning, leaving oil exposures much more balanced.
Oil’s rapid bounce from the sell-off lows suggests that plenty of interest lies in wait to scoop up black gold on material dips in prices. One could argue that the Q2 GDP is a backwards-looking data point, skewed by lockdowns in the US. The actual consumption picture could now be far more robust. A weaker US dollar should become more supportive of oil at these lower price levels. Only a loss of USD40.00 a barrel for Brent crude, or USD37.00 a barrel for WTI, will imply a much deeper correction is upon markets.
Gold continues its bullish consolidation
Gold dropped from USD1975.00 an ounce to USD1941.00 an ounce in volatile trading after the US GDP release. However, it weathered the storm, climbing late in the session to finish 0.75% lower at USD1956.00 an ounce. That leaves gold comfortably above USD1950.00 an ounce and it bullish consolidation intact.
Gold has weathered a few storms this week and passed with flying colours, albeit with some heart-pumping volatility. In Asia, gold is once again higher. It has regained all its overnight losses, climbing to USD1975.00 an ounce, as the US dollar continues to fall sharply this morning.
Lower US real yields and a consistently weaker US dollar are persuasive arguments for higher gold prices, and the market appears to agree. Haven derived buying also seems evident. What has been noticeable this week, is the pace with which gold has recovered material intra-day losses. That implies that gold has an avalanche of willing buyers hunting for the exposure on significant dips.
Gold’s downside should remain well supported around USD1941.00 an ounce, with resistance at USD1981.00 an ounce, ahead of the psychological USD2000.00 an ounce region. Here again, I expect option-related selling to appear. Yet again, though, I expect an immediate jump in prices once that level is cleared.
Bitcoin
Some very bullish price action has occurred in Bitcoin this week. Bitcoin broke long-term resistance at USD10,500 on its way to USD11,000 as the week ends. The almost 10% gain for the week implies that Bitcoin is once again finding its electronic safe-haven feet. A weaker dollar, US politics and the re-emergence of Covid-19 across the globe give traders plenty of reasons to think just that.
Bitcoin has consolidated for most of the week around the USD11,000 level in quite bullish technical price action. With none of the above factors likely to change anytime soon, the supportive case is expected to continue. Only a weekly close below USD10,500 invalidates that premise.
On the upside, Bitcoin has initial resistance at the week’s highs around USD11,420, with its next price target after that, the August 2019 high at USD12,324.
