Commodities fight back as USD softens

Commodities were able to regain a significant proportion of the previous day’s losses after the USD softened on Thursday afternoon. Much weaker-than-expected US retail sales was the inspiration behind the USD softness that continued throughout the US and Asian session, with retail sales unexpectedly dropping by 0.8% in comparison to the previous month. Consumer spending represents such a significant proportion of the US economy that the data has made people further question what kind of economic momentum the US economy has commenced the year with. Ultimately, the number was so weak that the markets are questioning whether the Federal Reserve will raise rates as soon as the USD bulls would like.

There will be some concerns that – despite household budgets being eased by the lower fuel prices and consumer confidence soaring after the constant progress being noted in the employment sector – consumers remain reluctant to spend money. This will likely encourage the Federal Reserve to think twice before raising US interest rates too soon, due to anxiety that consumer confidence might crumble. However, I would not expect this to push back the Federal Reserve from raising US interest rates altogether this year. The more likely downside risk to the USD in the meantime is that the weaker retail sales number will follow suspicions led by disappointing durable goods and factory orders recently that the first GDP estimate released two weeks ago will be revised lower.

Inspired by USD softness, Gold managed to bounce just over $10 higher to $1232. The metal has continued to make progressive moves on Friday morning ($8) and if we manage to extend above yesterday’s high at $1232, we might be attempting another return to the $1240 area. Whether Gold can progress any further would be correlated to further USD weakness, although I do see the upside potential for Gold depending on the outcome of the Greece bailout talks. Concerns have eased again following the statement from German Chancellor Angela Merkel that a compromise is possible, although we have has encountered so many ups and downs to this Greece saga already that I think the markets will take continue to take words with a pinch of salt, until action is confirmed.

Brent Crude Oil has been a significant advancer with the commodity progressing from as low as $56 to $60.33 just moments ago. Hopping above $60 represents Brent Crude’s highest valuation since the end of 2014, which also suggests to me that the bulls’ resilience to not giving up in its fight to at least recover some of the huge losses encountered over recent months is becoming admirable. Brent Crude is priced in Dollars so any further USD weakness could inspire the commodity to make further gains, where current resistance can be found at $60.39, $60.93 and $61.65.

WTI is another advancer, bouncing from as low as $49.21 yesterday to $52.06 this morning. The bullish momentum noticed in WTI is not quite as noteworthy as Brent Crude, with WTI still having quite a few resistance levels in front of it before it too can also claim to have reached its highest level since the end of last year. Resistance for WTI can be found at $52.53 and $53.13. I remain cautious how long the bounce higher will last because it was only a few days ago that the International Energy Agency (IEA) warned that global inventories are set to continue to rise before and possible cut in production, and it was only one day later that US crude inventories were announced above expectations once again.

At the time of writing, GDP data throughout Europe is being released but this has so far had a limited impact on the EURUSD because everyone is focusing on Greece to be honest. As mentioned above, there does appear to have been some progress made and the comments from Angela Merkel in particular will raise optimism over the matter. However, words are words and the clock is ticking to reach an agreement. In the meantime, this whole saga will not be completed until an actual agreement is confirmed and there will be further anticipation on the Eurozone finance ministers meeting on Monday to reach an agreement.

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