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Weekly Review 1.5.17- 5.5.17

 

GBP/USD - eyeing the major psychological barrier at 1.3000

The pair is trading currently near fresh 2017 highs and eyeing the major psychological barrier at 1.3000. According to preliminary estimates, the UK economy grew by 0.3% in the first quarter of the year, the slowest rate of growth since Q1 2016. The year-on-year growth came in at 2.1%, above previous 1.9% but below market's expectations of 2.2. UK Mortgage approvals reached £41,061K, 2.8% lower than in February 2017 but in line with the monthly average of 41,600K over the previous six months. Even despite a weak UK Q1 GDP reading, data, in general, has been relatively healthy in the UK (the expansion is entering its eighth year and the labor market is at full employment). This coming Thursday, the Bank of England is likely to hold its key interest rate at 0.25% ( according to analysts ). Analysts remain optimistic based on Europe and UK mutual beneficial relationships that the end-result will be significantly less severe than a “hard” Brexit. The final outcome will be “soft” Brexit and effect to the UK economy will be manageable.

Last week Fed left rates unchanged while maintaining the overall positive outlook for the economy in the US. The bottom line is the Fed still sees economic activity, the labor market and inflation on course with its expectations and is looking to hike interest rates at its June meeting. The odds of a June rate hike have risen to over 90 percent and the odds of another move later this year have risen to around 40 percent. The stronger-than-expected April employment report was published on Friday, the country added 211,000 new jobs in April, whilst the unemployment rate fell to 4.4%, its lowest in a decade. Wages remained weak, but around these last month's levels. The bigger-than-expected 211,000 new hires in April indicated the world’s largest economy is still on its growth course, and that bodes well for global growth expectations.

For the GBP/USD and despite sentiment is still positive in the short term, with traders seeing it breaking through 1.3000.

 

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, 1.3500 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 the 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", the 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 - 1.3000 and 1.3500 represent resistance levels, 1.2500 and 1.2000/1.1946 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 the trend reversal (The pair is trading below 1.3000 and the bearish momentum remains lively). For the GBP/USD and despite sentiment is still positive in the short term, with traders seeing it breaking through 1.3000. Breaking below 1.2700 would open the way to 1.2500.

 

EUR/USD - The French Election is the main event for the EUR/USD pair

The EUR/USD pair edged up for a fourth consecutive week, settling just a few pips below the, still untouched, 1.1000 mark. The runoff round of the French election is down to centrist Emmanuel Macron, who is pro European Union, and eurosceptic Marine Le Pen. Investors are heavily rooting for Macron as many believe a Le Pen victory could lead to the dismantling of the European Union and global financial upheaval. Polls show Macron with a comfortable lead over Le Pen, but there is always room for an upset as the U.S. election and the Brexit vote proved.

The French Election is still the main event for the EUR/USD pair. 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).

  • Best scenario for EURO is - Macron wins
  • Worst scenario for EURO is - Le Pen wins

The market has already priced in a win for Macron, predicting that a LePen win would be a “shock event”. A “Macron victory will see [the euro] rise across the board with euro-dollar targeting 1.1050. European inflation surprised to the upside, up to over three-year highs. Core annual inflation jumped to 1.2%, while the headline reading came in at 1.9%. The ECB left its monetary policy unchanged two weeks ago, and even indicated confidence in the economic growth, with the risk seen more balanced. ECB president Draghi said that the downside risk to the economy diminished further, whilst the economic expansion will continue to firm. Inflation, however, is still a concern for policymakers, while removing easing was not discussed, as the economy still faces "many fragilities."

Last week Fed left rates unchanged while maintaining the overall positive outlook for the economy in the US. The bottom line is the Fed still sees economic activity, the labor market and inflation on course with its expectations and is looking to hike interest rates at its June meeting. The odds of a June rate hike have risen to over 90 percent and the odds of another move later this year have risen to around 40 percent. The stronger-than-expected April employment report was published on Friday, the country added 211,000 new jobs in April, whilst the unemployment rate fell to 4.4%, its lowest in a decade. Wages remained weak, but around these last month's levels. The bigger-than-expected 211,000 new hires in April indicated the world’s largest economy is still on its growth course, and that bodes well for global growth expectations.

A “Macron victory will see [the euro] rise across the board with euro-dollar targeting 1.1050.

 

Technical 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 the current trading range and breaking above/below this levels would open the way to 1.2250 (resistance 2) or 1.000 ( psychological support).

 

 

Technically, the pair is slowly regaining its upward potential. The pair has a short-term resistance area at 1.1000, and it would take a break above this last to confirm a new leg higher towards the 1.1500 region (1.0900 and 1.0850 represent short - term support levels). If the price breaks 1.10 we have an open way to 1.15 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 an open way to 1.034 level and after that 1.01 level.

 

Oil

Oil has suffered heavy losses this week as investors are no longer pleased with current output cuts by OPEC. Prices sold off on Thursday, as easing tensions in Libya lessened the risk of disruptions to oil production in the country and Reuters reported that OPEC members aren’t interested in deepening the current cuts (oil prices dropped by almost 5% on Thursday). The possibility of power-sharing deal in Libya “adds to the potential for more supply“ (two of the largest factions in Libya have made progress in reaching a deal to resolve the nation’s political and economic crises). Current Libyan output stands at about 700,000 barrels a day and with this deal, Libya could reach 1.5 million barrels a day in a few months. Libya and Nigeria don’t have set production limits under OPEC’s six-month agreement. According to analysts, Nigeria wants to extend its exemption from quotas, which is a signal it hopes to increase production.

U.S. production has increased consistently for eleven weeks, which marked the longest run of gains since 2012. Oil ended higher Friday, bouncing back a bit from a nearly 5% drop a day earlier. The total count of U.S. active drilling rigs increased by 7 to 877 for its 16th consecutive weekly increase, Baker Hughes reports in its latest survey. The counts for total rigs, oil rigs and gas rigs have all more than doubled in the past year, from a respective 415, 328 and 86. OPEC plans to make a decision on a possible extension of the output cuts at its meeting on May 25. The general market expectation is for OPEC to further curtail their production after June, but several questions still loom, such as the length of the extension, quotas for the individual producers, and the sustainability of the compliance level. Consensus believes that given that inventories remain high, they expect OPEC to support prolonging the curbs in H2.

 

Technical analysis (current price - $46.22)

Oil has suffered heavy losses this week as investors are no longer pleased with current output cuts by OPEC. On this chart, I marked support and resistance levels (44/45 USD also represents strong support level, breaking below this support we have an open way to 40 USD). 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 a less possible scenario. Going forward, the Oil Production cuts and inventory and production levels will ultimately drive the market ( I would not recommend trade Oil till the OPEC meeting on May 25).

Indices - The market has already priced in a win for Macron, predicting that a LePen win would be a “shock event” and likely stocks down on Monday

 

Dow Jones Industrial Average

U.S. stocks finished higher Friday and for the week pushed by the stronger-than-expected April employment report (Nasdaq and the S&P 500 closed at records). My opinion is that this jobs report indicates that the job market remains healthy, underlining that the economy continues to grow at a solid rate in the US. The bigger-than-expected 211,000 new hires in April indicated the world’s largest economy is still on its growth course, and that bodes well for global growth expectations. The Dow Jones Industrial Average advanced 55.47 points to close at 21,006.94, its first close above the 21,000 mark since early March. The S&P 500 finished up 9.77 points, or 0.4%, at 2,399.29. The Nasdaq Composite Index finished up 25.42 points, or 0.4%, to end at 6,100.76. All three benchmarks notched weekly gains with the Dow up 0.3%, the S&P 500 up 0.6%, and the Nasdaq rising 0.9%. Two weeks ago Donald Trump said he will renegotiate the North America Free Trade Agreement (NAFTA) or terminate it, but the agreement is safe for now. He also warned that “There is a chance that the US could end up having a major, major conflict with North Korea". The US president promises that his fiscal reform to be the “largest ever”, the corporate tax should be lowered to 15% from 35%. Markets seem quite confident about this reform, and the US equity market is trading at all-time high levels. According to analysts the U.S. economy is still growing at healthy clip and paving the way for the Federal Reserve to raise interest rates soon.

When we look at the 2-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 20,500/21,000 and 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 then 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. From the perspective of economic fundamentals, US stock market is overvalued but as long DJIA, SPX and NDX are above 20,000, 2,250 and 5,250 there is no fear of the "bear" market. The market has already priced in a win for Macron, predicting that a LePen win would be a “shock event” and likely stocks down on Monday.

 

FTSE 100 Index GBP

U.K. stocks closed higher Friday, the FTSE 100 closed up 0.7% at 7,297.43, its highest finish since April 13. London-listed shares started showing solid gains after the U.S. jobs report and or the week the FTSE 100 rose 1.3%. The U.K. economy grew 0.3% in the first quarter, missing a FactSet estimate of 0.4%. A slowdown in services activity, particularly retail, clipped growth, the Office for National Statistics said Friday. Even despite a weak UK Q1 GDP reading, data, in general, has been relatively healthy in the UK (the expansion is entering its eighth year and the labor market is at full employment). This coming Thursday, the Bank of England is likely to hold its key interest rate at 0.25% ( according to analysts ).

When we look at the 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 7,000 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 7,000 points it would be "SELL" signal and then we have the open way to 6,700 level support. If FTSE falls below 6,700 points it would be strong "SELL" signal and then we have an open way to 6,400 level support. The market has already priced in a win for Macron, predicting that a LePen win would be a “shock event” and likely stocks down on Monday.

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