Selling XAU/USD and Brent
The forecast for the week October 10 - 14:
In the beginning of the week we should expect correctional growth to 1267/1279 as investors are going to settle in profit on short positions cause US dollar is weak. The release on the US labor market for September was worse than the forecast for both Non-Farm Payrolls and unemployment rate, which will put US dollar under pressure in the short term and will have a positive impact on gold. What will happen next? We expect the continuation of the bearish trend, as USDX Dollar Index will show an upward trend. The Friday's release on the labor market increased investors' expectations about raise of the rate by FED's in December from 55.1% to 60%. The quarter NPF release was the same as the previous year, but grew by 30.9% compared to the second quarter of 2015. At the end of last week, gold lost 5.3%, demonstrating the deepest weekly drop since October 26 of 2014. Investors are beginning to account tightening of the monetary policy by FOMC in the quotations, because the last week a strong "appetite for risk" had been observed and therefore they did not need to buy gold as a safe asset. Against this background, this week we should open Sell position on growth of quotations to 1267/1279 and take profit at 1243.
During the week we should open Sell positions for two reasons. First, the last week oil renewed this year's High, but could not hold it, whereas the last week US dollar basket index USDX surged by 1.18%. The US currency closed the first week of the new quarter at the highest level for the past two months. This factor is negative for oil as the price of oil is denominated in US dollars and growth of US dollar index may cause a correction of oil prices. Second, on Friday Baker Hughes reported an increase in the number of drilling rigs in the United States, Canada and Mexico by 3.3 and 2 units, respectively. As of today, in the United States and Canada the number of active drilling rigs is at the highest level since February 19, 2016, whereas in Mexico it is at the highest level since 15 April of the current year. Though slowly, but the number of drilling rigs is starting to grow on the whole North American continent, which will boost the oil supply in the global market and affect its price. Against this background, this week we should open Buy positions on decline to 52.00/53.30 and take profit at 50.30.
This week the season of the corporate reporting begins. The first quarter report will be published by Alcoa on Tuesday 11 October. We expect positive data against rising price of aluminum, as well as surge of the Baltic Dry Index by 39.5% in the third quarter. This index is a strong advance indicator of business activity, cause it reflects the demand in sea freight worldwide. On Friday, Citigroup will report to representatives of the banking sector, JPMorgan Chase, Wells Fargo & Company and we do expect strong data against dropping volume of mergers and acquisitions as well as low net interest margin. We can not ignore the significant surge of yield of 10-years' treasuries at the end of last week, which is usually a negative factor for the stock market. Bonds and shares traditionally compete for funds from investors, and early growth of profitability causes outflow of capital from shares. This week we expect flat 2130 - 2190.
Alexander GoryachevAnalyst of «FreshForex» company
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