Oil bucks the trend and retreats
One notable laggard in the commodity rally was oil overnight, with both Brent crude and WTI testing range highs again before retreating. Once again, it appears that speculative fast money has no stomach for the slightest reversal of loss of price momentum, leading to a tail-chasing rush for the door.
With the Brent crude futures curve back in sold bullish backwardation, any fall in prices should be limited. However, the bad news from India keeps getting worse, with record Covid-19 cases recorded yesterday. As the third-largest oil importer globally, India remains the weak link in the oil rally narrative. It appears to be tempering gains, even if oil’s broader technical picture looks strong. The first signs that India’s Covid-19 tragedy is easing is likely to see bullish fast money pile back into long positioning in force.
Brent crude fell 0.40% to USD68.25 overnight, reversing those losses by rising to USD68.50 a barrel this morning, with post-holiday Asian buyers showing their hand modestly. Brent crude has resistance at USD70.00 a barrel, and USD68.00 a barrel is now an important pivot point. Failure could see a speculative capitulation which could extend to USD66.00 a barrel.
WTI has risen 0.40% to USD65.40 in Asia, also reversing its overnight losses. It remains comfortably mid-range in its multi0week upward channel, bordered by USD62.50 and USD67.00 a barrel. WTI has intra-day resistance at USD66.00 a barrel. Support lies at USD64.50 a barrel, and failure could spark a two-dollar capitulation by fast money.
Looking ahead to the Non-Farm Payrolls data, predicting the effect of the outcome on oil prices is in the too-hard box. I am content to watch the fireworks from the sidelines.
Gold stages huge break higher
Gold clearly has some surprises left in it as it chose yesterday to play catchup to the commodity rally, after decent us data and dovish Fed comments push the US dollar and yields lower. Gold staged an impressive 1.60% rally as it rose nearly 30 dollars to USD1815.00 an ounce.
In the process, gold has completed a directional breakout by rising and closing above formidable resistance at USD1800.00 an ounce, its 100-day moving average (DMA), which now becomes support. Gold’s next target becomes USD1850.00 an ounce, its 200-DMA.
It is clear that plenty of technical traders and algorithmic models bought gold on the break of USD1800.00 an ounce. Quid pro quo should gold fall back below that point, an equally fast rush for the exit door should occur, pushing gold back to USD1780.00 an ounce.
At this stage, only bond markets suddenly deciding tonight that 1 million-plus jobs added, along with US GDP forecast to rise over 7.0% this year, are inconsistent with 10-year yields at 1.50%, threatens the gold rally. Gold has sung more heart-breaking songs to gold bulls than Elvis in his prime, but it would take something special to upset the applecart tonight.
