Crude Oil Prices Fall as Fed, RBNZ, BOJ Fail to Cheer Markets

CRUDE OIL & GOLD TALKING POINTS:

• Crude oil prices fall as Fed, RBNZ, BOJ easing fails to cheer markets
• Gold prices break below 11-month uptrend support amid liquidation
• Eurozone finance ministers meeting eyed, traders hope for fireworks

Crude oil prices fell alongside stocks as the coronavirus outbreak kept financial markets in a dour mood at the start of the trading week. This is despite an unexpected burst of monetary stimulus from the Fed, the RBNZ and the Bank of Japan. All three central banks held off-schedule meetings and delivered various degrees of additional policy support. The RBA promised more action on Thursday and hinted at a QE program.

That markets brushed off all this additional policy support – with S&P 500 futures locking limit down at the weekly trading open and APAC bourses down close to 3 percent on average – suggests it had been priced in already. It also speaks to the limited capacity for monetary policy to affect the underlying cause of the crisis. Boosting credit access may help dull the pain and buy some time, but perhaps little else.

Gold prices gapped higher at the weekly trading open as the FOMC slashed the target for the target Fed Funds rate to 0-25bps and launched a new $700 billion asset-purchase program. That initial burst of strength failed to find follow-through however, with the metal meandering downward to close the gap before settling in a narrow congestion range. It has struggled to capitalize on market turmoil.

CRUDE OIL, GOLD MAY FALL IF EUROZONE FINANCE MINISTERS DISAPPOINT

Looking ahead, futures tracking European equity benchmarks suggest more bloodletting in the hours ahead. The economic data docket seems mostly moot in the current environment, putting the spotlight on fiscal efforts to contain and counteract the coronavirus and its disruptive influence. A Eurozone finance ministers’ meeting might produce a response to the extent that it speaks to scope for bold, coordinated action.

If they fail to reassure battered financial markets even somewhat, crude oil and gold are both likely to face selling pressure. For the former, rising global recession fears translate into diminished demand prospects. For the latter, the markets’ rush for liquidity coupled with seemingly spent scope for further Fed stimulus speculation amount to liquidation vulnerability.

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GOLD TECHNICAL ANALYSIS

Gold prices have broken below an 11-month rising trend line, seemingly setting the stage for a decline below the $1500/oz figure. Supports in the 1480-85 and 1439-53 price bands follow. Defusing near-term selling pressure probably requires a break back above 1611.34, with confirmation on a daily closing basis.

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices remain range-bound below support-turned-resistance at 34.86 (61.8% Fibonacci expansion). Immediate support is at 31.11 (78.6% expansion), with a breach below that eyeing the 26.05-33 zone (100% Fib, February 2016 bottom). Returning to the $50/bbl figure is probably a prerequisite for neutralizing the immediate bearish bias.

Crude oil price chart created using TradingView

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— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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