Crude Oil, Gold to Rise if Service-Sector ISM Beats Expectations

DailyFX   |  March 5 2013 8:16 EST

Crude oil and gold are likely to rise on risk appetite and rising inflation expectations if the ISM gauge of US service-sector activity surprises to the upside.

Crude oil and gold are likely to rise on risk appetite and rising inflation expectations if the ISM gauge of US service-sector activity surprises to the upside.

Talking Points

• Crude Oil, Copper to Push Higher if Service-Sector ISM Reading Outperforms
• Gold and Silver to Rise on Inflation Bets as Fed Keeps QE While US Data Firms

Sentiment-linked crude oil and copper prices are pushing higher amid a broad-based recovery in risk appetite across financial markets. The chipper mood follows significant increase in government spending in China’s 2013 budget, lifting hopes for acceleration in the world’s second-largest economy and key commodity consumer.Supportive PMI figures from the UK and the Eurozone seem to have helped as well.

Looking ahead,all eyes are now on the US ISM Non-Manufacturing Composite gauge.Expectations are pointing to a slight slowing in service-sector activity growth, witheconomists are pencilling a reading at 55.0 in February compared with 55.2 in the prior month. A print in line with forecasts would fall firmly in line with near- to medium-term trend averages. US economic data has markedly improved relative to expectations since early February however, leaving the door open for an upside surprise.

Such an outcome may boost hopes fora resilient recovery in the world’s largest economy in the face of strengthening fiscal headwinds following the triggering of “sequester” spending cuts last week. That may boost risk sentiment, maintaining upward pressure on crude oil and copper prices. In the precious metal space, a stronger ISM print given a context of re-commitment to strong Fed stimulus by Federal Reserve Vice Chair Janet Yellen yesterday is likely to boost inflation expectations, lifting gold and silver.

WTI Crude Oil (NY Close): $90.12 // -0.56 // -0.62%

Prices broke support at 91.13, the 50% Fibonacci retracement, exposing the 61.8% level at 89.45. A further push beneath that aims for the 76.4% Fib at 87.38. The 91.13 level has been recast as near-term resistance, with a reversal back above that targeting the 38.2 % Fib at 92.80.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1573.77 // -2.46 // -0.16%

Prices are bouncing from support at 1570.37, the 38.2% Fibonacci expansion. Near-term resistance is at 1589.36, the 23.6% level, with a break above that aiming for the February 26 high at 1620.09. Alternatively, a turn downward initially aims for the 50% Fib at 1554.86.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.56 // -0.04 // -0.13%

Prices are bouncing from support at 28.46, the 23.6% Fibonacci expansion. Near-term resistance is in the 29.42-92 area, with a break higher exposing a falling trend line now at 30.96. Alternatively, a reversal below support targets the 38.2% level at 27.86.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.502 // 0.000 // 0.00%

Prices are testing support marked by a rising trend line set from early June (3.515) and the 38.2% Fibonacci expansion (3.495). A reversal from here sees resistance is at 3.536, the 23.6% expansion, followed by the February 28 high at 3.601. Alternatively, a push downward initially eyes the 50% level at 3.463.

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, please CLICK HERE