Crude Oil Prices May Be Capped By US Stimulus Uncertainty

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices may rise amid a cautious improvement in risk appetite
  • Gold prices find support as fiscal stimulus hopes cool US Dollar buying
  • Progress on US fiscal stimulus likely a prerequisite for lasting gains

Improving risk appetite across global financial markets pulled sentiment-linked crude oil prices upward alongside the bellwether S&P 500 stock index. Fading haven demand weighed on US Dollar – a go-to venue for capital fleeing riskier assets at times of market stress. That helped buoy anti-fiat gold prices.

Optimism appeared to be linked to renewed hopes for a second round of fiscal stimulus in the US. Markets swooned mid-week as President Donald Trump abruptly cancelled negotiations on a deal, but gradually recovered as he appeared to reverse course.

Mr Trump rejected the Democrats’ broad $2.2 trillion program but signaled support for a piece-meal effort including some of its parts. He backed measures such as a bailout of the airline industry – brought low by the Covid-19 outbreak – and another round of stimulus checks mailed directly to households.

CRUDE OIL, GOLD AIM HIGHER BUT US STIMULUS UNCERTAINTY MAY LIMIT GAINS

Futures tracking European and US equity indexes point cautiously higher in late Asia-Pacific trade, hinting that the risk-on mood may carry through into the week-end. That may help support oil prices for now. Worries about supply disruptions as Hurricane Delta nears the Gulf of Mexico may help.

Gold may also end the week on a high note as chipper mood keeps the Greenback on the defensive. Gains are likely to be limited in scope however unless stimulus talks seem to be making concrete progress, with traders wary of Mr Trump’s frequent reversals probably wary of over-committing into the weekly close.

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CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are drifting sideways below the $44/bbl figure. A breach of resistance in the 42.40-43.88 area – confirmed on a daily closing basis – may open the door for buyers to challenge the upside hurdle clustered around the $50/bbl mark.

Near-term support rests in the 34.64-36.15 zone. A turn lower that allows sellers to establish a foothold below this boundary appears to put the 27.40-30.73 inflection region into sellers’ crosshairs next.

Crude Oil Prices May Be Capped By US Stimulus Uncertainty

Crude oil price chart created using TradingView

GOLD TECHNICAL ANALYSIS

Gold prices continue to consolidate after slipping to a two-month low early last week. A tepid rebound has struggled to overcome former support in the in the 1911.44-28.82 area, keeping intact a series of lower highs and lows defining a bearish near-term bias.

Neutralizing selling pressure probably requires a daily close above immediate resistance as well as a falling trend line capping gains since mid-August, now near 1941. Alternatively, a close below the outer layer of the 1848.66-63.27 support shelf may open the door for a slide below the $1800/oz figure.

Crude Oil Prices May Be Capped By US Stimulus Uncertainty

Gold price chart created using TradingView

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— Written by Ilya Spivak, Head APAC Strategist for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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