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Weekly Review 10.4.17- 14.4.17

GBP/USD

The GBP/USD is trading  around 1.2500 level (currently above this level ). A consolidation above the 1.2500 handle, would clear the way to more gains and target 1.2550 and 1.2600. UK employment data offered a mix pictured on Wednesday, the unemployment rate fell to the lowest level in more than 40 years ( jobs openings hit a record high but wage growth rose at the slowest pace since 2014). This are positive news for GBP but wages are a real concern for the BoE and should continue to pressure the pound.  UK macroeconomic data released last Friday were below the expectations -  manufacturing production fell by 0.1% monthly basis, while industrial production fell by 0.7% in the month (expectations : 0.2% advance). The deficit on trade in goods and services widened to £3.7 billion in February from a revised deficit of £3.0 billion in January. The economy in UK grew by 0.5% in first three months, indicating that the economy lost momentum by the end of the first quarter.

The US Dollar came under some renewed selling pressure after a weak CPI report and softer retail sales data (this could have an impact on FED). Inflation fell more than expected and came-in to show a decline of 0.3% during March. Meanwhile, the core CPI also unexpectedly eased to 2.0% y-o-y, clearly suggesting that the inflationary pressure in the US economy has started easing. US Dollar has also weakened after Trump's comments. U.S. President Donald Trump said that U.S. dollar is getting "too strong". He also likes a low-interest rate policy, while adding that a strong US Dollar "will hurt ultimately the U.S". The US economy added 98,000 new jobs in March, marking the smallest gain in almost a year. According to some analysts this is a disappointing jobs report coming in well below consensus (This is not my opinion, the unemployment rate fell to 4.5% from 4.7%—the lowest level in almost 10 years). The Federal Reserve has begun to move its policy interest rate target faster. Fed officials moved the target federal funds range in the middle of December 2016 and then made another move in the middle of March 2017. After the March meeting, the target range was 0.75 percent to 1.00 percent. The "forward guidance" provided by Fed officials is for two more moves to take place this year. The projections for the federal funds rate released by the Federal Open Market Committee is as follows: the average rate projected for 2017 is 1.4 percent; for 2018 is 2.1 percent, and for 2019 it is 3.0 percent.

Geopolitical risks are in the center for traders (terrorist attacks in Russia and Sweden and the U.S.' airstrikes in Syria, the U.S. deployed the GBU-43B, a 21,000-pound bomb on an ISIS tunnel complex in eastern Afghanistan on Thursday).

 

Technical analysis

When we look at the monthly chart of this pair ( 12 years period) we can see strong " bearish" correction. On this monthly chart I marked resistance levels, 1.7000, 1.4300, 1.4000 are long - term resistance levels, 1.3000 also represents strong resistance level. As long the price is below 1.4000 resistance level there is no indication of long trend reversal and this pair is in the "sell" zone ( there could be a short term jump but strong "BUY" signal would be if the price jumps above 1.4000 level).

 

On this weekly chart (1 candle is one week period) we can also see that major trend is "bearish", price has dropped from 1.7000 level to 1.1946 level ( this level represents now strong support). On this chart I marked support and resistance levels - 1.2750,1.3000 and 1.3500 represent resistance levels, 1.2000 and 1.1946 represent strong support levels. On this chart I marked trend line and as long the price is below this line there is no indication of trend reversal (The pair is trading below 1.3000 and the bearish momentum remains lively). Breaking above 1.2600 would open way to 1.2750, breaking below 1.2200 would open way to 1.2000 (breakout of 1.2300 exposes 1.2200 region)

 

A consolidation above the 1.2500 handle, would clear the way to more gains and target 1.2550 and 1.2600.

 

 

EUR/USD - if Marine Le Pen wins the French election that could easily send EUR/USD below parity and all the way to 0.90

The EUR/USD broke above the 1.0600 level and closed the week at 1.0610 level. The US Dollar came under some renewed selling pressure after a weak CPI report and softer retail sales data. EUR/USD has room to the upside in case Le Pen is defeated by either Macron or Fillon. If Marine Le Pen wins the French election, her victory could easily send EUR/USD below parity and all the way to 0.90 (according to analysts this is a less possible scenario). EU preliminary March inflation released two weeks ago confirmed the ECB's case for further stimulus, as the core yearly inflation shrunk to 0.7% after holding steady at 0.9% for a couple of months. ECB president Draghi said that there is no longer risks of deflation, but he also added that the ongoing easing program will remain in place, and that rates could go further lower if needed, trying to prevent the EUR to appreciate further.

The US Dollar came under some renewed selling pressure after a weak CPI report and softer retail sales data (this could have an impact on FED). Inflation fell more than expected and came-in to show a decline of 0.3% during March. Meanwhile, the core CPI also unexpectedly eased to 2.0% y-o-y, clearly suggesting that the inflationary pressure in the US economy has started easing. US Dollar has also weakened after Trump's comments. U.S. President Donald Trump said that U.S. dollar is getting "too strong". He also likes a low-interest rate policy, while adding that a strong US Dollar "will hurt ultimately the U.S". The US economy added 98,000 new jobs in March, marking the smallest gain in almost a year. According to some analysts this is a disappointing jobs report coming in well below consensus (This is not my opinion, the unemployment rate fell to 4.5% from 4.7%—the lowest level in almost 10 years). The Federal Reserve has begun to move its policy interest rate target faster. Fed officials moved the target federal funds range in the middle of December 2016 and then made another move in the middle of March 2017. After the March meeting, the target range was 0.75 percent to 1.00 percent. The "forward guidance" provided by Fed officials is for two more moves to take place this year. The projections for the federal funds rate released by the Federal Open Market Committee is as follows: the average rate projected for 2017 is 1.4 percent; for 2018 is 2.1 percent, and for 2019 it is 3.0 percent.

Geopolitical risks are in the center for traders (terrorist attacks in Russia and Sweden and the U.S.' airstrikes in Syria, the U.S. deployed the GBU-43B, a 21,000-pound bomb on an ISIS tunnel complex in eastern Afghanistan on Thursday).

Tehnical analysis

When we look at the monthly chart of this pair we see that long trend is bearish (downtrend).  As long the price is below this trend line there is no indication of long trend reversal and EURUSD is in the sell zone(Big Investors are still in the short – SELL position on this pair). On this monthly chart I also marked support and resistance levels, 1.1500 (resistance) and 1.0500 (support) levels represent current trading range and breaking above/below this levels would open way to 1.2250 (resistance 2) or 1.000 ( psychological support).

 

If the price breaks 1.085 we have open way to 1.10 level. Most analysts agree that as long as below the critical 1.15 level , the risk will remain towards the downside. If the price breaks 1.055 support we have open way to 1.034 level and after that 1.01 level.

 

Oil - rising geopolitical tensions keep oil price supported

Over the past two weeks, oil prices have appreciated by 8.7%. Rising geopolitical tensions keep oil price supported, along with weaker dollar. Fresh bullish extension on Wednesday is approaching target at $53.78 (07 Mar high) ahead of psychological $54.00 barrier. Military action in the Middle East, which accounts for around 40% of global oil production, always carries the risk of pushing up oil prices ( jump in oil prices reflected worries the conflict cold spread to major producers nearby). Crude stockpiles are starting to decline in a sign that the production cuts implemented this year are bringing the market to balance, according to OPEC's Secretary-General Mohammad Barkindo. Exports in March from the Organization of Petroleum Exporting Countries dropped by 1.18 million barrels a day from the previous month to 24.4 million. Oil rose after Kuwaiti comments bolstered optimism that OPEC and its partners will extend output curbs. A joint committee of ministers from OPEC and non-OPEC oil producers meeting in Kuwait has agreed to evaluate whether a global pact to limit supplies should be extended by six months.

Last week's report suggesting that Saudi Arabia may be leaning toward extending OPEC output cuts helped extend the advancing streak in oil. The Saudi Announcement that they will seek an extension to the current production cuts during the May OPEC meeting was certainly well received by the market. The US Department of Energy reported today that oil inventories fell by 2.166 mln barrels last week. This is the first draw down in four weeks and only the second decline in US oil stocks this year. This is helping prices recover from the profit-taking seen earlier and may help the May contract extend its advancing streak. Positive news are that Goldman stays bullish on oil ( analysts see WTI crude rising to $57.50 per barrel by mid-year). Most analysts are expecting an increase in oil price for the first half of 2017 (a slow but steady rising of prices). In the second half of 2017, analysts are expecting the price to continue to grow at a similar rate (they also expect continued growth in Oil demand). Going forward, the Oil Production cuts and inventory and production levels will ultimately drive the market.

Technical analysis (current price - $52.91)

Rising geopolitical tensions keep oil price supported, along with weaker dollar. Fresh bullish extension on Wednesday is approaching target at $53.78 (07 Mar high) ahead of psychological $54.00 barrier and $54.41 (01 Mar high). The Saudi Announcement that they will seek an extension to the current production cuts during the May OPEC meeting was certainly well received by the market. Holding above 50 usd support level (psychological level) is important to achieve the waited targets, this supports the continuation of bullish trend overview efficiently for the upcoming period, and the way is open the achieve more gains that its next target located at 55 usd ( 60 - 62 usd is very strong resistance level). If the price jumps above 60 usd resistance level, 70 usd could be the next target. If the price falls below 40 usd it would be a strong "SELL" signal but for now this is not a possible scenario.

 

Indices - Geopolitical risks are in the center

Dow Jones Industrial Average

U.S. financial markets were closed in observance of Good Friday, which falls on April 14. Stocks fell Thursday to close at session lows, the Dow Jones Industrial Average DJIA, -0.67%  fell 138.61 points, or 0.7%, to close at 20,453.25. The S&P 500 index SPX, -0.68% dropped 15.98 points, or 0.7%, to its session low of 2,328.95. The Nasdaq Composite COMP, -0.53%  fell 31.01 points, or 0.5%, to close at 5,805.15. For the week, the Dow dropped 1%, the S&P 500 dropped 1.1%, and the Nasdaq fell 1.2%.

U.S. markets will get a chance tomorrow to react to Friday’s reading of retail sales and consumer prices. A report on inflation, consumer prices, fell for the first time in 13 months. The consumer-price index for March dropped to a seasonally adjusted 0.3% on cheaper fuel costs, compared with forecasts for 0.1%. Inflation fell more than expected and came-in to show a decline of 0.3% during March. Meanwhile, the core CPI also unexpectedly eased to 2.0% y-o-y, clearly suggesting that the inflationary pressure in the US economy has started easing.

Geopolitical risks are in the center for traders (terrorist attacks in Russia and Sweden and the U.S.' airstrikes in Syria, the U.S. deployed the GBU-43B, a 21,000-pound bomb on an ISIS tunnel complex in eastern Afghanistan on Thursday, conflict with North Korea..).

When we look at 5 year chart we see that Dow Jones Industrial Average is moving in "uptrend". As long DJIA is above this trend line and 20,000 points this index is in the "BUY" zone ( 20,000 and 19,000 represent support levels). Short term support and resistance levels are 20,400 and 21,000/21,500 points - If DJIA jumps above 21,500 points that would be a confirmation of "BULLISH" trend. If DJIA falls below 19,000 points it would be strong "SELL" signal and than we have open way to 18,000 level support. Stocks remain expensive, but index inflows keep supporting the market, and for now there is no sign of a major dip emerging any time soon.

 

 

S&P 500

According to fundamental metrics the market is currently overvalued. When P/E multiples are at extremes below historical averages it makes sense to buy the S&P 500 (P/Es are above 29 currently and this is high). Analysts expect returns to be strongly positive when P/E multiples are at extreme lows and to be negative when P/E multiples are at extreme highs. Positive thing is that financials start earnings season on a positive note (Technology earnings as a sector are likely fine and quite healthy).

When we look at this chart we can see that S&P 500 Index is moving in "uptrend". As long the S&P is above this trend line and 2,250 points this index is in the "BUY" zone ( 2,250 represent support level). If S&P jumps above 2,400 points that would be a confirmation of "BULLISH" trend and open way to 2,500 resistance.  As long is the S&P is above 2,250 points short term trend is "bullish" ( this index is in the BUY zone) and there is no indication of trend reversal. If the S&P falls below this trend line it would be strong "SELL" signal and than we have open way to 2,000 level support.

 

Trends like these will show signs of weakness first before they reverse, for now there is no signs of weakness. The average Wall Street strategist currently sees the S&P 500 ending 2017 at a level of 2,414. That's an additional gain of 4% from the S&P's current level.

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