Crude Oil, Gold Prices Look to Fed Rate Hike Bets for Direction


by  Ilya SpivakCurrency Strategist 

Talking Points:

  • Gold prices rise most in 2 months after soft services ISM report
  • Crude oil prices seesaw on OPEC news, US economic data flow
  • Fed to keep focus on rate hike outlook with Beige Book release

Gold prices soared after a disappointing service-sector ISM report weighed against Fed rate hike bets, pushing the US Dollar lower alongside front-end bond yields and boosting demand for anti-fiat assets. Crude oil prices initially declined as Iranian President Hassan Rouhani compounded emerging skepticism about the possibility of an output freeze deal at an OPEC meeting in Algiers this month, saying it was “vital” to restore production to pre-sanctions levels. The WTI contract bottomed and erased most intraday losses after the ISM print however as the greenback weakened and the prospect of a longer delay in Fed policy normalization bolstered overall risk appetite.

Looking ahead, Fed policy speculation remains a central theme as the central bank releases its Beige Book survey of regional economic conditions. The report will form part of the basis for officials’ assessment of the economy when the rate-setting FOMC committee convenes later this month. Needless to say, the markets will be keen to see if it provides some basis for policymakers’ saber-rattling despite disappointing news-flow in recent weeks. Indeed, San Francisco Fed President John Williams painted a rosy picture of the economy and argued that a rate hike makes sense “sooner rather than later” overnight.

GOLD TECHNICAL ANALYSIS – Gold prices posted the largest daily advance in over two months but fell short of breaching trend resistance capping the upside since early July.A daily close above this barrier – now at 1347.97 – opens the door for a test of the 1367.15-69.41 area (double top, 38.2% Fibonacci expansion). Alternatively, a reversal back below the 23.6% Fib retracement at 1333.62 targets the 1303.62-08.00 zone (May 2 high, 38.2% retracement).

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices paused to consolidate gains having attempted a recovery following the appearance of a bullish Piercing Line candlestick pattern. A daily close above the 23.6% Fibonacci expansionat 45.33 targets the 38.2% level at 46.76. Alternatively, a move back below the 14.6% Fibat 44.45 targets 43.02, the September 1 low.



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