Crude Oil Breaches $90.00; Still Vulnerable to Fiscal Cliff Developments

February crude oil briefly breached the psychological $90.00 level on Thursday before weakening slightly. The high for the month is $90.90 so the market came close to changing the main trend to up on a daily chart breakout. 

Although oil prices were driven higher on Wednesday after U.S. government data showed a jump in demand for diesel and heating oil, the positive momentum was slowed when it was reported that politicians had reached a snag regarding the budget negotiations. With time running out before automatic tax hikes and spending cuts kick in, long crude oil traders may decide to pare their positions to avoid being caught in the fiscal cliff volatility.

 February gold weakened for the third straight day. Prices are now well below $1700.00 and in a position to close under another key number at $1650.00. Although prices are weak, the selling pressure could have been worse if it weren’t for steady Asian buying. Despite the weaker U.S. Dollar, buyers remain on the sidelines due to the uncertainty surrounding the budget talks. Unlike equity traders, gold investors seem to be a little more pessimistic that a solution will soon be reached to avoid the fiscal cliff.

The EUR/USD followed through to the downside following Wednesday’s technical closing price reversal top. The Forex pair is still entrenched in a solid uptrend, but yesterday’s reversal sets up the possibility of a meaningful correction to at least 1.3100 over the near-term. 

Like the other foreign currencies, the Euro is being influenced by fiscal cliff news. For several weeks, optimism that a deal will be reached to avoid automatic tax hikes and spending cuts that could paralyze the U.S. economy in 2013 has driven the Euro higher and the dollar lower, but conditions could reverse if politicians can’t reach a compromise.

The GBP/USD is also being influenced by U.S.budget talks. In addition, improvements in the Euro Zone regarding debt issues and the possibility that the Bank of England will continue to refrain from additional quantitative easing are also helping to boost the Sterling. The main trend is up on the daily chart, but the market remains susceptible to a sharp correction if U.S. politicians can’t put an end to the fiscal cliff threat.