Weekly Report

Weekly Report Monday 17 April 2017 - Friday 21 April 2017

ENERGY

WTI Oil ended week strongly in red, marking the biggest weekly drop in a month that approached psychological $50.00 support on strong fall on Wednesday. Various factors are pressuring oil price which is in steady descend from recovery peak of Apr 12 at $53.74 per barrel.

Renewed doubts of extended global output cut weighed on oil price during the past week, as key members of OPEC, Saudi Arabia and Kuwait favor extending their production limiting deal with non-OPEC members for another six months, while Russian Energy Minister declined to say whether the top oil producers would adhere to an extension before a joint meeting scheduled for May 25. Russian point of view is that situation has been gradually improving, as global stocks were lower.

At the other side, production of US shale oil is increasing that raises doubts of rolling over production cut for the second half of the year. Extended production cut would risk more stimulus to the US shale oil sector, which would make it difficult for OPEC producers to return to the market with its full capacity later.

Rising doubts over extension of OPEC-led output cut deal and increased production of US shale oil kept oil prices under strong pressure past week. WTI contract that was rolled to June, was down over 6% for the week and eventually probed below psychological $50.00 support on Friday. Oil price accelerated strongly lower on Wednesday, pressured by disappointing EIA weekly crude stocks report that showed draw of 1 million barrels, missing forecast for 1.5 million barrels draw.

Negative sentiment that is building up on oil prices, is expected to intensify on firm break and close below pivotal supports at $50.00 and $49.62, technical support which marks 61.8% retracement of $47.07/$53.74 recovery rally, to generate another strong bearish signal  for possible full reversal of recovery rally from $47.07 base.

BRENT Crude oil was down nearly 7% for the week, marking strong weekly loss, the first one after three consecutive weeks of gains. Brent oil contract for June delivery retraced over 70% of its recovery rally from $50.12 to $56.63, on Friday’s fresh bearish acceleration that broke below $52.00 per barrel and extended strong fall of Wednesday, which was dragged by oil inventories miss. Brent is facing strong technical support at $51.33, break of which would open way towards key short-term supports and psychological point at $50.00 per barrel. Technical studies for both oil contracts are negative and maintain pressure from OPEC output cut extension and increased US shale oil production.

US NATURAL GAS futures for May delivery traded in a choppy way past week, but were around 2.5% down for the week. Forecast for steady and warmer than normal weather and light heating demand kept gas prices afloat, but unexpected build of natural gas storage by 54 billion cubic feet against forecasted build of 49bcf and previous week’s build of 10bcf, kept natural gas prices under pressures. Past week’s price action was held by strong technical support at $3.107, but could accelerate further down on loss of this support, as daily technical studies are weakening and building bearish momentum that may drag the price below $3.107 towards next significant supports at $3.028 and $3.000.

COMMODITIES

Spot gold ended week in red after five straight weeks of gains after hitting its highest level since early November at $1295, driven by safe haven buying on growing uncertainty over the Middle East and rising tensions around Korean peninsula. Such situations usually prompt investors out of riskier assets, as gold is traditional safe haven instrument. Last week’s easing could be seen as action driven by technicals and positioning for final attack at psychological $300 barrier.

Investors are awaiting results of the first round French presidential election due on Sunday, Apr 23, for more clues about near-term direction. Fears of the victory of far-right anti-EU candidate would be a good support for the yellow metal, as the EU would enter new period of strong political uncertainty, which would increase safe haven demand. Recent terrorist attack that mobilized French security forces just days ahead of first round of vote, was another supportive factor for gold price. From the technical point of view, gold price may fell further in technical correction on profit-taking after strong rally, but overall bullish structure is expected to remain intact and protected above strong technical supports at $1264 and $1255.

Investors will also keep an eye on events in the US, awaiting some announcements from the US administration on tax reform. US Treasury Secretary Steven Mnuchin said that tax reform plan will be unveiled soon and approved by Congress this year, regardless to the healthcare system overhaul.

Spot silver was also in red and ended week with 3.4% loss, dragged lower by stronger dollar and repeated upside rejection at strong technical resistance at $18.536 (weekly Ichimoku cloud top) after failing to sustain break above the cloud on two attempts. Overall structure remains positive and extended dips allowed to strong support at $17.737. Otherwise, further weakness could be expected, with next key support at $17.500 would come under pressure.

Copper ended the third straight week in red, pressured by fund selling earlier this week on fears political instability could hurt global growth. Several supply issues, such as Rio Tinto lower production in Q1 and cut of full-year copper guidance  to 500.000 / 550.000 tonnes from 665.000 tonnes due to strike in Escondida mine in Chile and production cut in Grasberg mine in Indonesia were supportive for copper price. On the other side, global copper market had a surplus of 51.000 tonnes in January, compared to surplus of 44.000 tonnes in January last year, but tighter markets are expected in coming months due Escondida mine strike. Copper traded within 2.4935 and 2.6105 range this week and was down around 0.85% for the week, compared to previous week’s loss of 2.75%. Extension of broader downtrend from 2.8215, 2017 high, posted on Feb 13, would extend towards next strong technical support at 2.4475, as technical studies are bearish, with technical corrections expected to interrupt the downtrend.

Cocoa contract for May delivery remained in a steep downtrend for the fourth straight week and was down over 6% for the week, spiking to weekly low at 1333, the lowest price since Jan 2012. Steep downtrend from Aug 2016 peak at 2512 would extend to key longer-term target at 1285 Dec 2011 low, after correction signalled by strongly oversold conditions on all larger timeframes. Significant resistance points lay at: 1434; 1474; 1529 and 1561.

INDICES

Wall Street was lower on Friday as investors held off from making risky bets ahead of the first round of the closely contested French presidential election due on Sunday. After a two-week losing streak, major indexes are on track to post weekly gains following Thursday's rally, which was driven by Treasury Secretary Steven Mnuchin's comments that the Trump administration would unveil a tax reform plan very soon.

A steady stream of strong earnings through the week continued to bolster market sentiment. Of the 95 companies in the S&P 500 that have reported earnings until Friday morning, about 75% have topped expectations, above the 71% average for the past four quarters. Overall, profits of S&P 500 companies are estimated to have risen 11.2% in the quarter, which marks the best performance since 2011. S&P contract for June delivery was up 0.9% for the week; Dow Jones index gained 0.5%, while Nasdaq100 registered the biggest weekly gains of 1.5%.

FTSE 100 index was the top loser last week, falling by 3.1% for the week and making huge one-day loss on Tuesday, after call for early election in the UK skyrocketed British pound and pressured FTSE100 index strongly. Technical studies weakened significantly on Tuesday’s fall, extending pullback from all-time high at 7444 and threatening psychological 7000 support and next strong technical point at 6969, loss of which will confirm reversal, as Head and Shoulders reversal pattern has formed on daily chart.
Strong bearish sentiment that was established after snap election announcement is also pressuring the price. Consolidation above fresh low at 7032 and previous low of Feb 2 at 7024 could be expected, as daily technical studies are strongly oversold, with limited upside action, seen ideally capped by strong 7200 resistance zone.

FOREX

British pound was the top performer of the last week, following strong rally on Tuesday and total weekly gains of  2.2%. After quiet trading on Monday on extended Easter holiday, shock came on Tuesday on news that UK PM Theresa May will make an announcement and in front of her Downing Street 10 office, which signalled something very important. Sterling entered the rolle-coaster ride on initial rumors of May’s possible resignation, which proved to be false. The pound then skyrocketed on announcement of early election, scheduled for June 8. PM May, as she said, wants to strengthen her hand before talks about details of divorce from EU start, as Britain needs to be united in this process.

Many observers have seen May’s decision as good and constructive, as markets shared the same view and welcomed the decision. The result was seen at the end of Tuesday’s trading, when pound surged to 1.2900 barrier against US dollar and signalled break above multi-month consolidation phase above post-referendum’s fall lows at 1.2000 zone. Additional support was seen from British parliament’s vote to back May’s decision for an early election
British pound is now threatening psychological 1.3000 barrier, which is seen as next trigger for extended recovery of post-Brexit referendum 1.5015/1.1986 fall, towards next barrier at 1.3100 zone.

Sterling eased from fresh high at 1.2904 on corrective action and profit-taking and also being pressured by weaker-than-expected UK Retail Sales which fell by 1.8% in March, well below forecasted 0.2% dip. The first round of French election is also in focus and the outcome may impact pound.

The Euro marked the second bullish week on 0.9% weekly gain and extended recovery against US dollar to 1.0776, week’s high, after being dragged by rallying British pound. However, the single currency was unable to hold gains and ended week at 1.0700 zone, which previously acted as strong resistance, as investors remain cautious ahead of Sunday’s first round of French election. According to the latest polls, centrist Emmanuel Macron is holding pole position, followed by far-right anti-EU candidate Marine Le Pen and far-left rival Jean-Luc Melenchon. Investors fear of the victory of anti-EU candidates which would significantly hit the Euro on risk of possible Frexit scenario that may materialize if Le Pen becomes the president. However, markets are not expecting spectacular reaction after the first round, but will have clearer picture for the second round. Analysts see strong possibility of Euro falling to the parity level on victory of anti EU candidate that would undermine the bloc which is still recovering from last year’s shock decision on Britain’s referendum that may repeat in France.

Technical studies for EURUSD remain positive despite recent pullback, as the pair managed to close on Friday above strong support zone between 1.0700 and 1.0680, showing chances for fresh upside attempts, based on technical studies. However, politics are expected to be again the main driver and stronger signals could be expected after results of first round vote come out.

Elsewhere, Japanese yen is pausing after recent strong rally against US dollar, inspired by safe haven buying on increased uncertainty and geopolitical risk. The USDJPY pair is holding above fresh low at 108.11 but limited upside attempts were seen so far, as overall sentiment remains supportive for yen and extended dollar-recovery attempts are seen ideally capped under strong 110.00 resistance zone.

Australian dollar pared some of last week’s losses against the US counterpart, triggered by release of RBA’s last policy meeting that suggested caution on rate views. The pair reversed higher after hitting low at 0.7490 and reversing back above 0.7500 barrier. Friday’s close above important technical barrier, 100SMA at 0.7522, was bullish signal for the Aussie, however, negative daily studies see limited upside action, which should be ideally capped by 200SMA at 0.7550. Alternatively, break above the latter would signal stronger recovery and expose next breakpoint at 0.7600 zone.

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