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Gold, WTI Crude oil and EURUSD - Intra week technical outlook, 01/08/19

Gold recovers from Fed led declines

Gold 0208

The precious metal was seen lifting off an eleven-day low on Thursday evening. This came after the Fed cut rates by just a quarter basis point. The central bank also signaled that this wasn’t the start of an easing cycle but rather an adjustment during the mid-cycle.

The Fed’s message was contrary to market expectations. Investors were hoping that the Fed will be dovish, signaling further rate cuts down the line. Lack of this communication sent gold prices lower until mid-day Thursday.

The recovery in gold prices came about following some weak economic reports from the U.S. Currently, Gold is likely to remain consolidating near the highs. While the support level of 1420 has been breached, we expect that this level will be reclaimed. Failure to rise above 1420 could signal further declines in gold prices. The lower support at 1383 – 1380 will be the next downside target.

Crude oil slips, brushing aside inventory drawdown

WTI 0208

WTI Crude oil prices were seen extending declines sharply on Thursday. Oil prices, which initially rallied back to the resistance area of 57.50 was seen easing back lower. The declines in oil prices stands contrary to various fundamental reports.

OPEC production for Crude oil slumped to the lowest level. Following this report, the EIA’s weekly inventory report showed that U.S. stockpiles of crude oil fell 8.5 million barrels. The declines in the oil prices are thus attributed to the strength of the U.S. dollar following the FOMC meeting on Wednesday.

From a technical standpoint, the declines off the 57.50 level will now put oil prices to trade back within the range. The lower support at 54.00 remains the initial lower range for now. We expect this sideways range to continue for a while. Further direction in oil prices can be established only on a convincing breakout from this range.

EURUSD drops to fresh two-year low

EURUSD 0208

The common currency was seen weakening sharply on Wednesday and Thursday. The declines came about after the Fed tapered expectations of further rate cuts. This sent the EURUSD down to lows of 1.0270 before recovering towards the close.

The breakdown below the support level of 1.1129 – 1.1110 is critical for the currency pair. If this level is not breached, we could anticipate further declines in the short term. Alternately, given the breakdown from the support level, the head and shoulders pattern that was evolving is now invalidated.

This shifts the bias to the upside. However, for this, EURUSD will need to reverse course and potentially close above the breached support level. Establishing support at this level could pave way for the currency pair to push higher. The next main resistance is seen at 1.1224 – 1.1250.

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