Despite lower demand for higher risk assets, March crude oil is trading slightly better on Monday. The inability to follow-through to the upside following this move appears to have been a failed attempt to breakout over the recent high at $96.92. The sideways trading action also suggests a distributive chart pattern which is often indicative of a topping formation.
Two moves will determine the short-term direction of the market. The first is the close. A lower close will be a sign of weakness. The second is the Fibonacci price level at $95.68. A close under this level will indicate the presence of selling pressure.
Last week’s potentially bearish supply and demand report could be contributing to the topping action. Although crude oil followed the stock market higher throughout December and some of January, the current rise in the equity markets has failed to generate the same buying interest in crude oil. All of which suggest the market is due for a near-term correction.
The absence of inflation and greater demand for equities continued to press April gold on Monday. Short-term oversold conditions may trigger a late session short-covering rally, but the overall trend is likely to remain down. A stronger dollar could also exert downside pressure on gold. The longer-term picture suggests that the market is headed toward the bottom of a triangle chart pattern near $1640.00.
The Fed meeting later this week is also weighing on gold prices. The central bank is expected to maintain its lower interest rate stance which does not bode well for gold prices. A hint that it is considering raising rates sooner than expected could encourage shorts to begin covering their positions.
The EUR/USD backed down after a strong surge on Friday. Buying pressure dried up as the market neared last week’s high at 1.3478. This price is slightly below a key 50% price at 1.3491. Profit-takers are controlling the market today which could mean the start of a near-term correction into a value area. The current chart pattern suggests that 1.3371 is the next likely downside target.
The GBP/USD is trading sharply lower. Today’s action negated last Friday’s closing price reversal top which failed to draw the attention of buyers. Today’s weakness is being attributed to bearish comments from the next Bank of England Governor Mark Carney. Carney who takes over the central bank in July said there is room for more monetary stimulus. He used the phrase “maxed out” which traders interpreted as meaning the BoE has room for more stimuli. This action tends to weaken a currency because it essentially floods the market with cash.
