US Dollar Weakness Sends Oil, Metals Higher as Traders Seek Inflation Hedge
Crude Continues to Trade on US Dollar Weakness as Traders Seek Inflation Hedge
Crude Oil (WTI) - $73.96 // $0.69 // 0.94%
Crude prices showed resilience in European trading despite a selloff in European shares as the US Dollar took a beating, boosting demand for oil as an inflation hedge. Commodity-specific event risk does not enter the picture until the US Department of Energy releases its inventory figures tomorrow, so Dollar-driven trading is likely to be the order of the day. Pharmaceutical giant Johnson & Johnson reports third-quarter earnings late into the session, which could prove to be enough of a catalyst to move equities and with them the safety-correlated greenback. An upside surprise could see the WTI contract move to test the recent swing high at $75.00, but technical positioning seems to favor the bearish scenario with momentum indicators showing negative divergence as prices approach resistance at the top of a rising channel. Finally, Fed governor Kohn is scheduled to speak in St. Louis, and could move prices lower should he project the same sort of cryptic hawkishness channeled by chairman Ben Bernanke last week.
Gold and Silver Follow Oil Higher But Technical Positioning Lacks Conviction
Gold - $1067.40 // $10.41 // 0.98%
As with oil, gold prices pushed past session highs on the back of US Dollar weakness and the consequent demand for an inflation hedge. However, the underlying demand story for the precious metal is less obvious than that of crude’s seemingly inevitable upward drift in the years ahead as emerging markets continue to come into their own and a rising global population demands greater energy supplies. This suggests gold to be far more subservient to risk trends than energy and industrial commodities, and thereby far more vulnerable as the third-quarter earnings season gets underway in earnest. Technical positioning does not look promising for the bulls at present, with clear negative divergence on momentum indicators.
Silver - $17.98 // $0.29 // 1.64%
Silver pushed to a new 14-month high, following gold as both metals traded on US Dollar weakness. In fact, there is not much to be added to the outlook for the lesser precious metal that does not apply to its more expensive counterpart. Inflation expectations and the greenback remain key to watch.
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