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Weekly Review 17.4.17- 21.4.17

GBP/USD

The GBP/USD broke above the 1.2800 level and closed the week at 1.2808 level. One of the biggest stories this week was Prime Minister May's decision to call snap elections in June. This was completely unexpected and the pound has surged more than 2% after this announcement. According to analysts, she wouldn't have made the move without some confidence in her victory and May is very popular despite the country's division over Brexit.

UK employment data offered a mix pictured, 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 is 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 before two weeks 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 the UK grew by 0.5% in first three months, indicating that the economy lost momentum by the end of the first quarter. Although the retail sales fell sharply in the month of March, data, in general, has been relatively healthy in the UK.

US President Trump pledges tax-cut plan next week which includes "massive" tax cut for individuals and business. 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. 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. Next week, US data could have a more significant impact, also US President Trump could make some announcements.

 

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", 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). Breaking above 1.2900 would open the way to 1.3000, breaking below 1.2700 would open the way to 1.2500.

 

 

EUR/USD - French Election is the main event

The French Election is the main event for the EUR/USD pair. While it is the first of two rounds with a final vote scheduled for May 7th, the winner's lead could set the tone for how European assets trade for the next few weeks. There are 4 candidates - Marine Le Pen, Emmanuel Macron, the center-right Francois Fillon and the left-leaning Jean-Luc Melenchon who mounted a late-stage comeback to pull within striking distance of the other three.

  • Best scenario for EURO is - Macron and Le Pen earn the most votes & Macron wins with a comfortable margin
  • Worst scenario for EURO is - Le Pen and Melenchon/Fillon earn the most votes & Le Pen wins with a comfortable margin

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). My opinion is that the best way to trade the French Presidential election is to wait until the results are known. A key driver for EUR/USD will also be the European Central Bank's monetary policy announcement on Thursday. According to analysts, the central bank's hands are tied because inflation is low with consumer price pressures easing further in the month of March. 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.

US President Trump pledges tax-cut plan next week which includes "massive" tax cut for individuals and business. 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. 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. Next week, US data could have a more significant impact, also US President Trump could make some announcements.

 

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 - below $50 a barrel

Oil fell on Friday and the price of oil finished below $50 a barrel with a weekly loss of roughly 7%. The latest weekly rise in active U.S. oil rigs offered another sign of further growth in U.S. crude production, casting doubts that the Organization of the Petroleum Exporting Countries will agree to extend its product-cut deal into the second half of the year. Speculators are understandably skeptical as they are not sure if non-OPEC members will agree to any new deal.

Positive thing is that Saudi Arabia Energy Minister said Thursday that a handful of cartel members have reached a tentative agreement to cut more supplies. Oil prices rose after this comments but quickly lost steam as analysts said the remark only stirred up more uncertainty. On Friday, Russian Energy Minister Alexander Novak said Russia, which isn’t part of OPEC, would discuss the possible extension of the output deal with OPEC on May 24 (a day before OPEC’s member meeting in Vienna).

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 - $49.61)

According to analysts, crude prices will be able to rise again due to the efforts of OPEC and some non-OPEC countries to limit oil production, and as demand in the US is set to rise further. 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 - Trump pledges tax-cut plan next week

Dow Jones Industrial Average

U.S. stocks fell Friday but trims losses as Trump pledges tax-cut plan next week. The S&P 500 finished down 7.15 points, or 0.3%, at 2,348.69. The Dow Jones Industrial Average finished down 30.95 points, or 0.2%, at 20,547.76. The Nasdaq Composite Index COMP retreated from the record close set Thursday, falling 6.26 points, or 0.1%, to close at 5,910.52. For the week, the Dow industrials advanced 0.5%, the S&P 500 rose 0.9%, and the Nasdaq rose 1.8%, following two weeks of declines.

US President Trump pledges tax-cut plan next week which includes "massive" tax cut for individuals and business (this will have the positive impact on some stocks). 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 20,500 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. 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.

FTSE 100 Index GBP

FTSE 100 edges down after weak retail sales and closed down at 7,114.55 (worst weekly performance in five months). The FTSE 100 closed down 0.1% on Friday, with basic materials shares swinging lower and oil shares tracking a selloff in crude prices. But the utility sector, considered defensive, ended higher alongside industrial, health care and financial shares. One of the biggest stories this week was Prime Minister May's decision to call snap elections in June. According to analysts, she wouldn't have made the move without some confidence in her victory and May is very popular despite the country's division over Brexit. Although the retail sales fell sharply in the month of March, data, in general, has been relatively healthy in the UK.

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 7,000 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 than we have open way to 6,400 level support.

 

 

 

 

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