Crude Oil, Gold Prices May Fall in Tandem on Fed Rate Decision

Crude oil prices continued to slide alongside share prices yesterday as Brexit fears stoked broad-based risk aversion. Gold prices managed to score a fifth consecutive advance, with ebbing Fed rate hike bets emerging as the likely culprit once again: the OIS-implied 12-month policy outlook dropped to the lowest level since late February and now suggests traders no longer expect further tightening in 2016.

Looking ahead, the FOMC rate decision is in focus. May’s dour US jobs report touched off sharp deterioration in priced-in rate hike probabilities. This means that while a dovish posture is likely to be nominally supportive for risky appetite, significant follow-through is unlikely. Indeed, such an outcome would do little more than confirming what investors have already accounted for.

Alternatively, a neutral tone coupled with broadly unchanged economic forecasts and status-quo rate hike path projections will probably clash with consensus views and prompt repositioning. Policymakers have hinted that this may be the path of least resistance, warning investors not to over-extrapolate from one payrolls print. Crude oil and gold are likely to face selling pressure if this proves to be the case.

GOLD TECHNICAL ANALYSIS – Gold prices advanced for a fifth consecutive day, making for the longest winning streak in two months. Momentum may be slowing however, with the 20-day ATR measure of volatility falling to the lowest since early February. From here, a daily close above the 1297.87-1303.62 area (38.2% Fibonacci expansion, May 2 high) targets the 50% level at 1328.25. Alternatively, a move back below the 23.6% Fib at 1259.84 exposes the 14.6% expansion at 1237.13.

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices declined for a fourth consecutive day after establishing a top below the $52/barrel figure as expected. From here, a daily close below the intersection of the 23.6% Fibonacci retracement and a rising trend line at 47.76 targets the 38.2% level at 45.37. Alternatively, a reversal above a horizontal pivot at 49.73 exposes the June 9 high at 51.64.