Could fears of a new wave turn commodity markets around?

Marec 22, 2021 14:30

As we discussed last February, the technical outlook for both gold and oil completely reversed during 2020 and early 2021 leaving a positive outlook for crude oil due to the vaccination process and improved future prospects.

During the last few days, there has been a growing fear regarding increasing cases in Europe. This increase has caused several countries to tighten their measures in an attempt to curb the pandemic. This in turn has generated a level of uncertainty that we will have to pay attention to in the coming days in order to see the evolution of the pandemic and the possible evolution in the financial markets and commodities.

Analysis of Gold

During the first part of 2020, gold was one of the market's main protagonists with a rise of more than 25% that took it to 2,089 dollars per ounce. However, since reaching this maximum at the beginning of August, the price continued to fall within the bearish channel until it reached the key support in the area coinciding with the lower red band around 1,675 dollars and the 61.8% fibonacci retracement level of the previous uptrend.

After reaching this level, the price finally made a bullish bounce in search of its 18-session average in black which acts as the main resistance level. Here, the price has stopped after being affected by the dollar rallies triggered by the US bond rallies and the plunge of the Turkish lira that is taking place following the dismissal by Tayyip Erdogan of the governor of the Turkish central bank after disagreements with economic policy.

It is important to watch the price action as, if the current trend in US bonds and the instability in the currency market following the recent events in Turkey continues to strengthen the dollar, gold could make another downward push back to its important support level, thus cutting short this latest upward bounce. 

This bearish bounce around its moving average resistance could be interpreted as a channel failure, as the price will not return to its upper band, which could lead to further declines. As long as gold is unable to break above the upper trend band of the bearish channel and its 200-session moving average, sentiment will remain negative.

Source: Admirals (Formerly Admiral Markets) MetaTrader 5 - Gold Daily Chart. Date Range: 6 December 2019 - 22 March 2021. Date Captured: 22 March 2021. Past performance is not necessarily an indication of future performance.

Price evolution of the last five years:

  • 2020: 21.86%
  • 2019: 15.45%
  • 2018: -3.22%
  • 2017: 12.75%
  • 2016: 10.12%

Brent Analysis

After several positive weeks since the beginning of February and rises of more than 20% due to the growing optimism for the future after the start of the vaccination process, in the last few sessions we have seen an increase in instability. This is due to the increase in cases of coronavirus in European countries, jeopardising recovery as new measures could be implemented, affecting the price of crude oil. 

Technically speaking, it seems that crude oil has finally found a resistance as last week the price fell almost 7% closing at a level close to 65 dollars after bouncing off the upper band of the bullish channel and the blue resistance level that we can see in the weekly chart, although on Friday it recovered 2.61%. It is important to watch the next few sessions and see how the pandemic evolves as it could be pivotal in deciding the future trend.

Currently, the first important support level is around 60 dollars per barrel as this is the area between its previous resistance level, its broken downtrend line (in dashed lines) and its 18 session average.

The loss of this level could lead to further declines in search of its 200 session average in red or even the lower band of the bullish channel.

Source: Admirals MetaTrader 5 - Brent Weekly Chart. Date Range: 7 September 2014 - 22 February 2021. Date Captured: 22 March 2021. Past performance is not necessarily an indication of future performance.

Price evolution of the last five years:

  • 2020: -21.52%
  • 2019: 22.68%
  • 2018: -19.55%
  • 2017: 17.69%
  • 2016: 52.41%

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