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Weekly Review 8.5.17- 12.5.17

 

GBP/USD

The GBP/USD pair was unable to surpass the 1.2900 level and closed the week at 1.2891. Last week the Bank of England (BoE) downgraded its growth forecast for the UK economy in 2017 (from 2% to 1.9%). This BoE's negative views should weigh on investor sentiment for some period. The Bank of England kept all policy measures unchanged at the meeting on Thursday and analysts still believe the BoE will remain on hold for the next 12 months. The UK macroeconomic calendar will be quite busy during the upcoming days, with April CPI and PPI figures on Tuesday, and monthly employment data on Wednesday.

General Election is just a month away and Theresa May is seen as the most likely candidate to win the election. The French Election was the main event for the markets last week. Emmanuel Macron was elected France’s head of state after beating his far-Right rival Marine Le Pen. Investors were heavily rooting for Macron as many believe a Le Pen victory could lead to the dismantling of the European Union and global financial upheaval. My opinion is that Mr Macron would bring much-needed stability to Europe ahead of the Brexit negotiations. The Prime Minister Theresa May "reiterated that the UK wants a strong partnership", she discussed Brexit with Mr Macron in a phone call last week. According to some analysts, Emmanuel Macron is expected to drive a hard bargain over Brexit, but this is the much better situation without Marine Le Pen. 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.

Soft US data has helped the GBP/USD to recover from a fresh weekly low of 1.2842. Retail sales in April posted a modest gain of 0.4%, against expectations of 0.6%, inflation rose by a bit less than expected. Two weeks ago Fed left rates unchanged while maintaining the overall positive outlook for the economy in the US.  Odds for a Fed hike next June are currently above 80% and the odds of another move later this year have risen to around 40 percent. 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 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.

 

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). Breaking below 1.2700 would open the way to 1.2500. Despite dollar's broad weakness, the pair was unable to advance on Friday, ending it flat around 1.2890.

EUR/USD - EU inflation will take center stage this week

The EUR/USD peaked at 1.1020 at the beginning of the week but the pair was unable to close above 1.1000. The French Election was the main event for the EUR/USD pair last week. Emmanuel Macron was elected France’s head of state after beating his far-Right rival Marine Le Pen. Investors were heavily rooting for Macron as many believe a Le Pen victory could lead to the dismantling of the European Union and global financial upheaval. The market has already priced in this victory, predicting that a Le Pen win would be a “shock event”. The situation in which Marine Le Pen has won the French election, her victory could easily send EUR/USD below parity and all the way to 0.90.

The euro briefly climbed above 1.10 against the dollar for the first time in six months after Le Pen was defeated, before trading about half a percent lower at 1.093. Emmanuel Macron’s victory has reassured investors, although profit taking has pushed EUR/USD down. An early burst of enthusiasm soon wore off, as investors either took profits. Bad news for the EUR was that EU industrial production fell again in March, down by 0.1% monthly basis. Further weighing on the EUR was stubborn Draghi, who reaffirmed that is no time to think of tapering stimulus.

Soft US data has helped the EUR/USD to recover from a fresh weekly low of 1.0838. Retail sales in April posted a modest gain of 0.4%, against expectations of 0.6%, inflation rose by a bit less than expected. Two weeks ago Fed left rates unchanged while maintaining the overall positive outlook for the economy in the US.  Odds for a Fed hike next June are currently above 80% and the odds of another move later this year have risen to around 40 percent. 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 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.

 

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 dollar will likely have a hard time resuming its gains this week, at least from a technical perspective.Further gains beyond 1.0950 will likely see the pair resuming its bullish trend. 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. This week, EU inflation will take center stage, the good report will probably fuel speculation of early tapering in the region (positive thing for the EUR/USD).

 

Oil

Oil prices ended with the first weekly gain in a month on expectations that the OPEC will extend an agreement to curb production at its meeting on May 25. The positive news that had a positive impact on the price of Oil were from OPEC officials in recent days. They have suggested the possibility of an extension that would run past the end of the year, as well as deeper production cuts. Some OPEC members hinted at the possibility of bringing new participants into the agreement (Turkmenistan and Egypt). One more reason for OPEC to extend or even deepen its curbs is accelerating production from countries like U.S., Brazil, Canada, and even OPEC members Nigeria and Libya (OPEC also raised its forecast for oil-production growth from countries outside of OPEC by more than 60%). 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. The total count of U.S. active drilling rigs increased by 8 to 885 for its 17th consecutive weekly increase, Baker Hughes reports in its latest survey. It's more than double the amount of working rigs one year ago (Oil rigs rose by 9 to 712).

A monthly OPEC report released last week showed that OPEC’s total output fell again to an average of 31.73 million barrels a day in April. 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 - $47.88)

Oil prices ended with the first weekly gain in a month on expectations that the OPEC will extend an agreement to curb production at its meeting on May 25. 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

Dow Jones Industrial Average

U.S. stocks closed lower on Friday to record their first weekly loss in nearly a month as investors weighed an uncertain political environment stemming from President Trump’s firing of former Federal Bureau of Investigation Director James Comey. Soft US data was released last week, retail sales in April posted a modest gain of 0.4%, against expectations of 0.6%, inflation rose by a bit less than expected. For the week, the Dow Jones Industrial Average DJIA is off 0.5% at 20,896.61, the S&P 500 fell 0.4% to close at 2,390.90. The Nasdaq Composite rose 0.3% to close at 6,121.23. 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. 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.

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 and 21,000 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 an 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 ended at an all-time closing high on Friday as AstraZeneca PLC AZN posted its biggest gain in three years. Shares in oil producers have contributed to the FTSE 100’s weekly advance, climbing alongside gains in crude-oil prices. The FTSE 100 index closed at 7,435.39, extending its weekly rise to 1.9%. Last week the Bank of England (BoE) downgraded its growth forecast for the UK economy in 2017 (from 2% to 1.9%). 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 last Friday. Even despite this, 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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