Crude Oil Prices May Fall as Soft US Data Compounds Risk Aversion


CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices pop as US blames Iran for tanker attack in Gulf of Oman
  • Gold prices capitalize as risk aversion sends Treasury bond yields lower
  • Soft US retail sales, consumer confidence data may broadly sour sentiment

Crude oil prices jumped upward amid reports of an attack on two tankers in the Gulf of Oman. Speaking later in the day, US Secretary of State Mike Pompeo blamed the incident on Iran, amplifying concerns about on-coming escalation that might lead to supply disruption. Gold prices rose as the uneasy mood weighed on bond yields, boosting the relative appeal of non-interest-bearing alternatives.

SOFT US RETAIL SALES, CONSUMER CONFIDENCE DATA THREATENS CRUDE OIL

US retail sales data as well as the University of Michigan gauge of consumer confidence are in focus from here. Receipts are seen rising 0.6 percent in May – rebounding after April’s 0.2 percent contraction – while sentiment pulls back a bit from an eight-month high. US data outcomes have tended to underperform relative to forecasts recently, opening the door for further disappointment.

Soft results might bolster the markets’ confidence in the dramatic dovish shift in Fed policy bets since early March, but scope for further progress in that direction seems limited. Investors already expect at least two cuts before year-end and seem increasingly confident in a third, even as the central bank’s quantitative tightening (QT) effort is wound down. A still more dramatic stimulus injection seems far-fetched.

With that in mind, the markets may focus on the negative implications of soggy US data on global growth prospects and thereby broad-based sentiment. That might see cycle-sensitive crude oil prices pressured alongside stocks. Indeed, the WTI benchmark is already drifting lower alongside bellwether S&P 500 futures in early European trade.

The implications for gold prices may be a bit more difficult to tease out. Yields are likely to fall further in a risk-off environment, offering support. That could be offset if the US Dollar manages to capitalize on haven demand now that investors’ Fed outlook is about as dovish as it will probably get in the near term. The stronger Greenback would undermine the appeal of anti-fiat assets, capping the yellow metal’s gains.

Did we get it right with our crude oil and gold forecasts? Get them here to find out!

GOLD TECHNICAL ANALYSIS

Gold prices continue to push against resistance marked by February’s swing highat 1346.75. Breaking above it on a daily closing basis opens the door to test a trend-defining barrier in the 1357.50-66.06 area. Alternatively, a turn below support in the 1323.40-26.30 zone targets the 1303.70-09.12 region.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices continue to idle at support in the 50.31-51.33 area. A daily close below that sets the stage to challenge a potent barrier in place since September 2016 in the 42.05-43.00 zone. Alternatively, a rebound above the upper layer of near-term resistance at 55.75 exposes the 57.24-88 region next.

Crude oil price chart - daily

COMMODITY TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter



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