market analysis

Weekly Review 20.3.17- 24.3.17


The EUR/USD pair closed the week at 1.0796 level. Current month beat expectations in Europe, strong pace of growth continues to accelerate. The Eurozone economic growth reached a six-year high, with the Composite PMI up to 56.7 from 56.0 in the previous month (the US private sector expanded at its slowest pace for six months in the US). Manufacturing and service sector activity accelerated in the Eurozone, led by gains in Germany and France, the region's 2 largest economies. Euro also 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).

Less hawkish Fed monetary policy outlook continues to weigh on the US Dollar and further collaborated to the pair's downward trajectory. The Federal Reserve said last 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 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). Last week Trump announced that his party will probably work on the tax reform now, which partially offset dollar and equities' decline.



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 - The key event is the meeting in Kuwait

The key event is the meeting in Kuwait where all will be present from the Opec/Non-Opec team including the Saudi Minister and all the members of the monitoring group which is Kuwait, Algeria, Venezuela, Russia and Oman. Analysts expect that they will tell that it's all good, production cuts are working and that the price of oil will surge in the coming months. If there is any sense that the deal is in jeopardy price of oil will fall even more.

The Organization of the Petroleum Exporting Countries and 11 other leading oil producers including Russia agreed in December to cut their combined output by almost 1.8 million barrels per day in the first half of the year. Russian Energy Minister Alexander Novak said he expects global oil stockpiles to decrease in the second quarter of this year.

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. 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). Price of oil is still below 50 USD, driven by a big rise in inventories and a jump in active oil rigs. 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


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.



Dow Jones Industrial Average

The stock market will face a crucial test next week as Trump suffers setback. Trump suffered a major blow on Friday when House Republicans withdrew the American Health Care Act after they failed to secure enough votes to pass the bill. Last week Trump announced that his party will probably work on the tax reform now, which partially offset dollar and equities' decline. Analysts expect volatility to rise in the coming days. The S&P 500 SPX, fell 1.98 points, or 0.1%, to close at 2,343.98 shedding 1.4% for the week, its biggest drop since November. The Dow Jones Industrial Average DJIA, slid 59.86 points, or 0.3%, to 20,596.72 for a weekly decline of 1.5%. 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.

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

U.K. stocks finished slightly lower Friday, as investors were on tenterhooks ahead of a closely watched U.S. health-care vote set for after the close of London trade, which could have implications for the domestic market. The FTSE 100 index dropped 0.1% to close at 7,336.82, logging its worst weekly decline since January.

Politics will also be in center focus in the U.K. Prime Minister May expected to trigger Article 50 in the next few days. Analysts expect stocks to fall quickly when the announcement is made but it should recover swiftly as the inevitable finally happens and investors realize that the negotiation process will be long and filled with delays.

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.

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