Forecast for the week from March 6th to March 10th:
Gold closed previous week session in red zone, and I believe this tendency is valid for this week too. The reason is the same - strengthening of US dollar. As we already know, there is strong inverse correlation between gold and US dollar. As possibility of Fed rate hike has increased, investors enter long on US dollar much more.
The key event of the week is US labor market February report release. We expect strong data, as unemployment benefit applications percentage has dropped to its 43-year low, and December Conference Board consumer confidence reached its 15-year high. It is worth to mention increase in ISM Non-Manufacturing Employment Index up to two-month high. Positive report will strengthen greenback and respectively will have negative impact on gold quotes. Trading recommendation: Sell 1237/1245 and take profit 1220.
This week we may expect new oil sale for two reasons. First of all, as a result of January-February US oil inventories have increased by 41.1 million barrels – we observe an increase over 8 weeks in a row. We would like to remind you that during this period last year US inventories increased by 30.5 million barrels. In general, it is a season factor. Almost every year from January till mid April USA shows increase in oil inventories fallowed by rapid decline. Due to this, one should not expect sharp drop in oil quotes as in 2014-2015. It's March now and oil inventories increase will continue one or one and a half month still. However, traders may use this set-up to launch correction to the downside.
Aside from increase in oil inventories we should mention increased oil output. Americans need to ramp up their production by less than 60 thousand barrels per day to reach new annual high. Second of all, as we mentioned earlier during this week we may expect US dollar uptrend continuation, which will put more pressure on oil quotes, as it is quoted in US currency. Trading recommendation: Sell 55,90/57,00 and take profit 54,85.
This week we have an unclear situation. On the one hand, positive Non-Farm and February wages report may be expected which can encourage bulls to buy shares. Considering positive dynamics of ISM Manufacturing and Non-Manufacturing Indices we may expect economic growth increase in the first quarter this year, which will encourage corporate income increase. Weekly CFTC report shows significant profit increase of this futures long positions, which allows us to count on uptrend continuation.
On the other hand, reduction of profitabilities differential on two-year and 10-year American state bonds indicates that FOMC may launch monetary policy tightening at March 15 meeting already. As Broad Market Index increased by 6% from the beginning of this year, we may assume that many institutional investors can start fixing and cashing profit on long positions before Fed meeting. Trading recommendation: flat in 2350-2430.