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Weekly Review 29.4.17- 2.5.17

 

 GBP/USD - eyeing the major psychological barrier at 1.3000

The GBP/USD closed the week at 1.2950 despite a weak UK Q1 GDP reading (the economy in the UK grew by just 0.3% according to preliminary estimates). 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.

Upcoming direction will likely depend on how the market reacts to the Fed's monetary policy outcome on Wednesday,  with a bearish breakout expected in the case policymakers "confirm" a rate hike for next June. Today is a holiday in London and there are no macroeconomic releases in the UK until Tuesday. The UK will release April PMIs during this week, and will likely gather more attention than usual, as strong figures will likely fuel Pound's advance pass 1.3000. 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. Even despite a weak UK Q1 GDP reading, data, in general, has been relatively healthy in the UK.

US first quarter data showed lower than expected, growth 0.7% q/q vs 2.1 expected and retail consumption has disappointed 0.3% versus 3.5 at Q4 2016. In my opinion, the US central bank will be very cautious by not raising rates too early. The US debt is very big and increasing rates above 2% may prevent the country to service its debt. 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 main event is the Fed's meeting on Wednesday (higher inflation will lift chances of a sooner rate hike). Core PCE inflation fell monthly basis by 0.1% as expected (in March), whilst the annual reading came in at 1.6%, below previous 1.8%. Tepid inflation figures cooled the case for a June rate hike ahead of Fed's meeting later this week. US released today the ISM Manufacturing PMI for April and PCE inflation figures (PCE inflation, ISM readings are weaker than expected).

Last week 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 around its all-time high levels.

Technically, the GPB/USD is slowly regaining its upward potential

 

 

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 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 1.2950 would open the way to 1.3000, breaking below 1.2700 would open the way to 1.2500.

 

 

EUR/USD - slowly regaining its upward potential

European markets are closed amid the Labor Day and the EUR/USD pair trades at 1.0909. 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 last week, 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."

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

US first quarter data showed lower than expected, growth 0.7% q/q vs 2.1 expected and retail consumption has disappointed 0.3% versus 3.5 at Q4 2016. In my opinion, the US central bank will be very cautious by not raising rates too early. The US debt is very big and increasing rates above 2% may prevent the country to service its debt. 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 main event is the Fed's meeting on Wednesday (higher inflation will lift chances of a sooner rate hike). Core PCE inflation fell monthly basis by 0.1% as expected (in March), whilst the annual reading came in at 1.6%, below previous 1.8%. Tepid inflation figures cooled the case for a June rate hike ahead of Fed's meeting later this week. US released today the ISM Manufacturing PMI for April and PCE inflation figures (PCE inflation, ISM readings are weaker than expected). Last week 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 around its all-time high levels.

Technically, the EUR/USD is slowly regaining its upward potential. The FED is not expected to change its monetary policy when it concludes its two-day meeting Wednesday, although uncertainty about the prospect of a June rate rise continues to remain.

 

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).

Technically, the pair is slowly regaining its upward potential. The pair has a short-term resistance area between 1.0930/50, and it would take a break above this last to confirm a new leg higher towards the 1.1000 region (1.0900 and 1.0850 represent short - term support levels). If the price breaks 1.10 we have 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 open way to 1.034 level and after that 1.01 level.

 

Oil - uncertainty surrounds the possibility for an OPEC output cut extension

Oil prices eased on concerns that restraint from OPEC and other large producers won’t impact the global oil glut, especially with U.S. output remaining solid. OPEC meets this month to cement the output freeze continuation. Consensus believes that given that inventories remain high, they expect OPEC to support prolonging the curbs in H2.

The Organization of Petroleum Exporting Countries agreed late last year with other big global exporters to curtail global production by about 1.8 million barrels a day. In the meantime, U.S. oil inventories remain strong, the total U.S. rig count rose by another 13 to 870, marking the 15th consecutive weekly increase, according to Baker Hughes' latest survey. U.S. exports of crude have soared, overseas shipments jumped to 1.15 million barrels a day in last week's data, the second highest level on record. Imports from Middle East OPEC countries show no sign of falling. This 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.

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. Positive thing is that Saudi Arabia Energy Minister said last 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. 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 analysts stay 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 - $48.74)

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

Dow Jones Industrial Average

U.S. stock-market benchmarks on Monday attempted to trade higher. The S&P 500 was up 2 points, or 0.1%, to 2,386. The Dow Jones Industrial Average was up 9 points, to 20,947. The Nasdaq Composite Index COMP was up 0.58%, to 6,083. US first quarter data showed lower than expected, growth 0.7% q/q vs 2.1 expected and retail consumption has disappointed 0.3% versus 3.5 at Q4 2016. US released today the ISM Manufacturing PMI for April and PCE inflation figures (PCE inflation, ISM readings are weaker than expected). Tepid inflation figures cooled the case for a June rate hike ahead of Fed's meeting later this week.

Last week 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 around its all-time high levels.

President Donald Trump has reached a major milestone in his presidency: His 100th day in office. Since his election win, the Dow has climbed 14.22%, the S&P 500 has advanced 11.43%.

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

U.K. stocks edged lower Friday, the FTSE 100 lost 0.5% to close at 7,203.94, trimming its weekly gain to 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).

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.

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