RS: Copper, Crude Oil Vulnerable If Bernanke Disappoints
Commodity prices are on the upswing as all eyes turn to Federal Reserve Chairman Ben Bernanke and his semiannual Congressional testimony. An updated set of 2012 global growth expectations from the International Monetary Fund released yesterday underscored once again that the US is seen accelerating while other key major output-driving countries slow (as in China) or outright contract (as in the euro zone). This pins global recovery hopes on the ability of the US to offset headwinds from elsewhere, with additional support from the Fed understandably seen as conducive.
The move higher in sentiment-linked assets ahead of the testimony reflects hopeful expectations for dovish rhetoric, opening the door for a disappointment. Indeed, the Fed is almost certainly not oblivious to the limitations of additional QE given bond yields are already within a hair of record lows and real rates are in negative territory out to the 10-year maturity. With that in mind, Bernanke will probably deliver a familiar mantra, leaving the door open to additional accommodation to mollify jittery markets just enough to avoid pandemonium without actually expanding the balance sheet and remain mum on specifics.
While this would amount to little more than a restatement of the status quo, it may nonetheless prove to weigh on risk appetite given high-flying expectations. That bodes ill for growth-geared commodities including crude oil and copper. It likewise promises to put downward pressure on gold and silver as the US dollar gains amid renewed risk aversion while store-of-value demand for the precious metals dissipates.
Prices took out resistance at 3.445, the 14.6% Fibonacci expansion, exposing upside barriers at 3.535 and 3.618. The 3.445 level has been recast as near-term support, with a break below that targeting the 23.6% Fib at 3.378.
Prices continue to trade sideways above support at 84.14, the 23.6% Fibonacci retracement. Near-term resistance is at 88.40, the 38.2% level, with a break above that exposing the 90.00 figure and the 50% Fib at 91.84. Alternatively, a breach of support targets the 81.19-52 area marked by the June 4 low and the 14.6% retracement.
