Talking Points
WTI Crude Oil (NY Close): $97.78 // +2.04 // +2.13%
S&P 500 stock index futures are ticking higher, hintingcrude oil is likely to rise along with a broad-based recovery in risk appetite. Sentiment isimprovingafter Greece finally settled on Lucas Papademos – at one point the Vice President of the ECB – as its new Prime Minister, while Italy seemed to abandon the idea of disruptive early elections in favor of a technocrat-geared transition government headed by former EU Commissioner Mario Motti. The news-flow underpinned hopes that the emergence of coherent stewardship in both countries will see the passage of austerity measures that offer relief to the debt crisis.
On balance, this nascent optimism seems unlikely to prove lasting. While the passage of deficit-cutting measures is certainly a step in the right direction, their actual implementation is what investors would truly like to see. Indeed, at this stage, Greece is a go-to case study of a country that promised a lot but yielded little, failing repeatedly to meet the budget benchmarks set by its saviors at the EU and the IMF. With that as their base-line scenario, it is unlikely that traders would expect any more of Italy, at least until they are proven unequivocally wrong (which will take some time and seems unlikely). This suggests the respite from risk aversion will probably prove brief, reopening the door for renewed crude oil selling ahead.
Turning to the chart setup, prices are approaching 61.8% Fibonacci retracement resistance at $99.57, with negative RSI divergence suggesting bullish momentum is fading and hinting a top may be ahead. A reversal with lower with a daily close beneath $94.87, the 50% retracement reinforced by a rising trend line set from the October 4 low, is needed as confirmation.
Spot Gold (NY Close): $1758.40 //-11.55 // -0.65%
The recovery in risk appetite hinted in S&P 500 stock index futures bodes well for gold in that it is likely to weigh on the safe-haven US Dollar, offering the yellow metal a de-facto lift. Comments from Federal Reserve policymakers Janet Yellen and John Williams are also of note, with pro-stimulus rhetoric from the typically dovish pair feeding QE3 expectations and driving demand for gold as an inflation hedge.
On the technical front, prices put in a bearish Evening Star candlestick formation below the $1800.00 figure and descended to test initial support at 1755.80, the 23.6% Fibonacci retracement level reinforced by a rising trend line set from the October 20 swing low. A break below this boundary initially exposes the 38.2% level at 1726.74. Near-term resistance stands at 1802.77, the November 8 swing high.
Spot Silver (NY Close): $34.07 // -0.01 // -0.01%
As with gold, a potentially weaker US Dollar over the near term may offer silver a boost, if only temporarily before risk aversion returns anew. The technical setup is little changed from yesterday. Prices put in a bearish Evening Star candlestick pattern below resistance at $35.12, the 50% Fibonacci retracement level, sinking once again toward critical support at the $33.00 figure. A break below this juncture exposes the 23.6% Fib extension level at $31.39.
---Written byIlya Spivak, Currency Strategist forDailyfx.com
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