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The trend on oil is not over yet

Forecast for the week April 11 - April 15:


The coming week, a mixed background works for the precious metal. On the one hand, reduced "appetite for risk" will contribute to demand in safe assets such as gold. On Monday, US corporates release their season reports and almost all investors, with few exceptions, expect drop of the quarterly profit. That will cause sales in the stock markets. There are several key negative factor for US corporations: growth of US dollar, decline of commodity prices, slowed demand in commodities on emerging markets. Rising oil prices are also a favorable factor for XAU/USD, because of a strong historical correlation between both instruments. On the other hand, on Thursday the release on March inflation in the USA will be published, which could support the US dollar, which in turn will put gold under pressure as its price is denominated in US dollars This week we expect flat within the range of 1205 - 1265.


On Sunday, April 17 the important event for the "black gold" market will be held in Doha. I expect that this week investors will be building long positions and after the final press release will be published they may begin to record profit on their positions. Key market players will hold bilateral meetings to urge to work out a consensus. In general, all players except Iran, are ready to sign the final protocol to freeze the level of production. Under current economic environment, Iran obviously would not benefit from this approach. A main intrigue of the summit: will the parties succeed in resolving this issue? The weekly US statistics published on crude oil reserves plays into the hands of "bulls": volume of stocks was reduced by 4.9 million barrels - after a seven-weeks' growth. In the first quarter, reserves were increased by 47.4 million barrels, which is by 44.8% lower than a year earlier. Once again, Baker Hughes reported about reduction of number of operating drilling rigs, which also adds optimism to market players. In the United States and Canada, the number of oil rigs was reduced by 8.3 units to 354.8 units. This week we open Buy position on drop of quotations to 40.80/39.90 and take profit around 43.00.


On Monday, April 11 US corporate start a season of reporting. By tradition, the first report is made by the aluminum giant Alcoa. Investors expect a drop of its net profit by 78% y/y. The weak data is expected on the background of low metal prices and reduced demand of emerging markets. This week sector leaders will report: JPMorgan Chase & Co, Bank of America, BlackRock, Wells Fargo. For all companies, consensus forecasts is negative, because starting from the first quarter there had been a turmoil on financial markets. Growth of pessimistic sentiment is confirmed by dynamics of the last trading week, which showed demand in the bonds of "protective" utilities sector. Market players start to revise their investment portfolio to switch to the "quality assets". It is impossible to ignore the report on March inflation, which will be published on Thursday - 14 of April. A strong labor market, coupled with rising energy prices make it possible to rely on growth of CPI index. In turn, that will boost profitability of short-term government bonds and thus encourage "bears" to open short positions. In this regard, when the price reachs its High for the first quarter (2073.1), you can open short positions. Against this background, this week we should open Sell positions on growth of quotations to 2064/2095 and take profit at 2011

Alexander Goryachev
Analyst of «FreshForex» company
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