News

market analysis

Weekly Review 13.3.17- 17.3.17

 

GBP/USD

The British Parliament passed the initial Brexit bill without amendments giving the government a free hand in the Brexit process. UK Prime Minister May got the parliamentary approval the courts ruled was necessary to formally trigger Article 50. It is not clear what UK she will lead out the EU. Scotland is beginning the legal proceedings to hold another referendum on independence. There is some talk that Northern Ireland, which voted to remain, might be allowed to rejoin the Republic of Ireland. Once the Art. 50 is triggered, much of the outcome of the negotiations will depend on EU members rather on what PM May wants.

The GBP/USD pair settled at its highest in two-weeks, a couple of pips shy of the 1.2400 figure, as the Pound got a nice boost from the latest BOE's meeting that took place last Thursday. The Central Bank left its economic policy unchanged, but what actually fueled the GBP was a sentence included in the statement that reads "some members noted that it would take relatively little further upside news on the prospects of activity or inflation for them to consider that a more immediate reduction in policy support might be warranted." Last week UK data releases were mixed – unemployment fell but average weekly earnings, which the BoE has highlighted as a policy trigger, dropped to +2.2%, from +2.4%. The unemployment rate fell to 4.7% in the three months to January, level last seen in 2005 (positive news for GBP but wages are a real concern for the BoE and should continue to pressure the pound).

The Federal Reserve said on Wednesday that it would hike the benchmark interest rate by 25 basis points (target range of 0.75% - 1%); a decision that was widely expected. However, the Fed's policy-setting committee did not flag any plan to accelerate the pace of monetary tightening. Although inflation is "close" to the Fed's 2% target, it noted that goal was "symmetric," indicating a possible willingness to allow prices to rise at a slightly faster pace. Analysts continue to expect economy will expand at moderate pace over next few years in the US.

The main event would be this Wednesday, the UK will release multiple inflation figures (PPI, CPI and Retail Price index). If the figures beat market's expectations that would be a "bullish" signal for GBP/USD (a rate hike in the UK will become more imminent).

 

 

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 1.3000, breaking below 1.2200 would open way to 1.2000.

 

 

The main event would be this Wednesday, the UK will release multiple inflation figures (PPI, CPI and Retail Price index). If the figures beat market's expectations that would be a "bullish" signal for GBP/USD (a rate hike in the UK will become more imminent).

EUR/USD

The EUR/USD pair closed the week above 1.07 level ( the pair reached a fresh 1-month high of 1.0782). Euro got a lift after the ECB's monetary policy meeting, as despite the Central Bank left its policy unchanged, offered a more optimistic economic outlook. 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 ECB is expected to reveal a tapering plan in September, if the Eurozone’s political picture is stable and the inflation is on a solid path toward the bank’s 2% mandate target. Last week ECB's Nowotny said that the Government Council talked about the possibility of rising rates ( bullish sign for EUR/USD).

The Federal Reserve said on Wednesday that it would hike the benchmark interest rate by 25 basis points (target range of 0.75% - 1%); a decision that was widely expected. The US Central Bank hiked rates as largely anticipated, but retain the stance of a slow pace for upcoming hikes, being far more conservative than expected. Analysts continue to expect economy will expand at moderate pace over next few years in the US.

Over the weekend, the G-20 meeting ended and world leaders were unable to find common ground with the new US administration (this outcome will likely weigh on the USD in short term).

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 1.08 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

Many analysts are likely deliberating whether the sharp drop in oil prices represents a short-lived technical aberration to be followed by a "bounce" and, possibly, gradual recovery to above-$60 level or a shift to a lower price paradigm that can prevail for several months or even longer. Oil fell more than 9% in two weeks period, driven by a big rise in inventories and a jump in active oil rigs (Oill was trading below $50 a barrel as of the close Friday). The total U.S. rig count surged by 21 to 789, according to the latest Baker Hughes weekly survey, rising for the ninth straight week and following last week's increase of 12. Oil demand is expected to drop from 1.6M barrels a day last year to 1.4M bpd in 2017, raising further problems for producers as they try to ramp up prices.

Analysts also expect a high probability that OPEC, led by Saudi Arabia, will extend the production cut agreement in May. This will help accelerate global storage draws and level storage back to the five-year average (analysts continue to be very bullish on oil prices and energy equities). Oil prices reversed its two-week straight decline with a gain this week (finishing higher on the bullish EIA storage report, but still below $50). The total oil stockpile declined and analysts expect the total US stockpile to decrease between 16 to 20 million bbls. Nevertheless, it looks like the slide is over and oil prices may be able to stage a more noticeable recovery in the coming days. 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.

  • According to analysts - In Q1 and Q2 2017, there is an 8/10 chance of an undersupply in oil of between 0.38mb/d and .56mb/d, resulting in a price increase of between $57 and $58
  • In Q3 and Q4 2017, there is a 6/10 chance of a continued undersupply between 0.38mb/d and 0.56mb/d, increasing the price closer to between $61 and $63

 

Technical analysis

When we take a look at this chart, we can see that priced dropped from 110 USD to 26.05 USD and than started to rise. The current rally has managed to break the downtrend that has been in place for so long, and coming after a double bottom, it looks positive from a technical perspective. The bullish trend is still in place, but momentum is starting to fade a little bit. On this chart I marked support and resistance levels (45 usd also represents strong support level, 50 usd is the first resistance). Breaking above 50 usd resistance 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

Dow Jones Industrial Average

U.S. stocks edged lower on Friday but managed to post moderate weekly gains with investors awaiting further catalysts before jumping back into the market. The Dow Jones Industrial Average DJIA, -0.10% slid 19.93 points, or 0.1%, to close at 20,914.62, while the S&P 500 index SPX, -0.13% shed 3.13 points, or 0.1%, to finish at 2,378.25. The Nasdaq Composite Index COMP, +0.00% rose less than a quarter point to end at 5,901. T there are no signs for now that "bullish" trend will end, there could be a short term retreat but as long S&P 500 and Dow Jones Industrial Average are above (2,250 and 20,000 points) there is no signal of "bear" market. Positive thing is that the US added 235,000 new jobs in February, whilst the unemployment rate edged down to 4.7% (underemployment rate edged to 9.2% from previous 9.4% and the  US monthly employment report was quite encouraging). On monthly basis wages rose by 0.2%, missing expectations of 0.3%, but year-on-year surged to 2.8% ( but this is not worrying).

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 20,500 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.

 

 

 

FTSE 100 Index GBP

It’s been yet another good week for the FTSE 100, with the leading UK benchmark set for a record weekly close. Last week UK data releases were mixed – unemployment fell but average weekly earnings, which the BoE has highlighted as a policy trigger, dropped to +2.2%, from +2.4%. The unemployment rate fell to 4.7% in the three months to January, level last seen in 2005. The main event would be this Wednesday, the UK will release multiple inflation figures (PPI, CPI and Retail Price index).

When we look at 2 year chart we see that FTSE 100 Index is moving in "uptrend". As long FTSE 100 is above this trend line and 6,700 points this index is in the "BUY" zone ( 6,700 and 7,000 represent support levels). Short term support and resistance levels are 7,200 and 7,500 points - If FTSE 100 jumps above 7,500 points that would be a confirmation of "BULLISH" trend and open way to 8,000. If FTSE falls below 6,700 points it would be strong "SELL" signal and than we have open way to 6,400 level support.

Trade now