Iran’s nerves suffer from oil
Oil markets rose yesterday as Brent touched resistance at $ 70.00 a barrel. The rally suffered a sharp turnaround after BBC Persia tweeted that progress had been made on a US-Iran deal, with an announcement coming today. The Russians in the UN denied the story, but the damage was done; Brent ended 1.50% lower at $ 68.50 per barrel and WTI closed 1.60% lower at $ 65.25 per barrel.
The negative tone continued in Asia, with Brent and WTI falling 0.90% to $ 67.65 and $ 64.70 a barrel, respectively. With the threat of a return of Iranian production to international markets having been ignored of late, price action suggests that the short-term speculative market has gotten too long and erred near the high end. Price action in Asia indicates markets remain nervously long and wrong, and more downside pain is possible.
Failure again at $ 70.00 a barrel means this remains the critical barrier to further gains for Brent, even though it should drop quickly to $ 72.00 once crossed. The overnight low of $ 67.30 is initial support, followed by $ 66.50 a barrel. WTI has resistance at $ 67.00 per barrel and support at the overnight low of $ 64.15, followed by the channel low at $ 63.80 per barrel.
The wide overnight ranges and the rapidity of the pullback suggest that near-term markets are vulnerable to further losses. If the BBC’s story is correct, oil prices could drop significantly, and quickly as long speculatives surrender in disorderly mass. The underlying bullish case remains for oil, and for those who are brave enough, a messy retreat lower can be fertile ground for bargain hunters with deep pockets.
Gold rally shows signs of fatigue
Gold ended the overnight session slightly higher, rising just 0.15% to $ 1,869.00 an ounce as US yields soared. After surveying the decline in Asia, it returned to the unchanged state. Gold struggled to recover, however, even though the US dollar fell significantly overnight. This suggests that the upward momentum is waning in the short term.
After rallying close to $ 50 an ounce in just the previous two sessions, Gold’s Relative Strength Index (RSI) has now moved into overbought territory. This suggests that gold will trade sideways over the next few sessions or pull back, easing the pressure on the technical indicator.
After rallying a long way in a short period of time, a downward correction is more likely. Gold has resistance at $ 1,875.00 per ounce, opening a test of $ 1,900.00 per ounce. Support is near USD1863.00 per ounce, after which the chart image shows that a significant drop is possible to USD1845.00 per ounce. It’s a series of previous daily highs and the 200-DMA.
The fate of gold will likely be decided by the behavior of long-term US bond yields after the FOMC minutes tonight.