Crude Oil, Copper May Fall as Neutral ECB Rhetoric Dents Risk Appetite Gold and Silver Flat at Familiar Levels as Prices Struggle to Find a Catalyst

Commodities are treading water in early trade as investors brace for top-tier event risk due to cross the wires in the hours ahead, with the spotlight on the European Central Bank. The current policy framework is expected to remain unchanged but markets seem to be pining for Mario Draghi to talk try to talk down the Euro at the press conference following the announcement.

The central bank President seems unlikely to overstep the bank’s mandate and dip into exchange rate policy however. Indeed, a strong currency and its negative implications for exports and broader economic growth ultimately falls outside of the ECB’s strict focus on price stability alone. This may disappoint expectant markets, weighing on risk appetite and spelling trouble for sentiment-linked crude oil and copper prices.

Sentiment may be further dented by signs of continued impasse on a budget agreement at an EU leaders’ summit getting underway in Brussels. Investors may have been relatively sanguine about the re-emergence of familiar UK-French frictions if not for the backdrop of the Eurozone debt crisis. This time, passing a budget is critical to secure funding for ongoing bailout efforts and further delay on this front may amplify sovereign risk jitters.

The outlook for gold and silver continues to be clouded. In fact, both precious have occupied narrow trading ranges over recent days as prices struggle to find a clear directional catalyst. Still, we continue to think that it is feasible for a significant deterioration in sentiment that forces a correction in the runway USDJPY rally to trigger broader US Dollar weakness that boosts anti-fiat assets.

WTI Crude Oil (NY Close): $96.62 // -0.02 // -0.02%

Prices broke lower as expected, taking out the bottom of a Rising Wedge chart formation, after putting in a bearish Dark Cloud Cover candlestick pattern. Initial support is at 95.14, the 23.6% Fibonacci retracement, with a break below that exposing the 38.2% level at 93.24. Near-term resistance is marked by the January 30 high at 98.21.

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Spot Gold (NY Close): $1677.70 // +4.75 // +0.28%

Prices continue to hover above rising trend line support dating back to mid-May (1657.55), with a bullish Morning Star candlestick pattern arguing for an upside bias. Near-term resistance is at 1690.39, the 38.2% Fibonacci retracement, followed by a falling channel top at 1694.42. Alternatively, a drop below support targets the January 4 low at 1625.69 and the 1600/oz figure.

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Spot Silver (NY Close): $31.83 // +0.08 // +0.25%

Prices are edging higher in a narrow upward-sloping channel. Near-term resistance lines up in the 32.65-88 area, marked by a horizontal pivot and the channel top. A break above that aims for the upper boundary of a larger channel top at 33.34. Near-term support is at 31.17, with a drop below that aiming for the 30.00 figure and the major channel bottom at 29.10.

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COMEX E-Mini Copper (NY Close): $3.770 // +0.002 // +0.05%

Prices are turning lower after putting in a Shooting Star candle below resistance at 3.778, marked by the top of a Rising Wedge pattern and the 50% Fibonacci expansion. Near-term support is at 3.736, the 38.2% Fib, with a reversal back below that aiming for the Wedge bottom at 3.676. Alternatively, a break above resistance exposes the 61.8% level at 3.820.

Daily Chart - Created Using FXCM Marketscope 2.0