Oil Correction | 13 October 2017

Forecast for the week from October 9th through October 13th:

XAU/USD:

Sell gold expecting continuation of downtrend. US currency demand is still strong, that is exactly the reason why gold was under the pressure during the last four trading weeks. This week greenback is thought to continue rising, as Friday saw release of strong September US inflation data. Ten-year US Treasury bonds yield showing inflation expectations of investors is now at its twelve-week highest, this is a strong support for US dollar. CFTC reports also confirm heavy downtrend; large speculators have been actively selling gold over the recent three weeks. This week is likely to be the last one for downtrend. Next week gold rise might be expected due to S&P500 correction to the downside. Trading signals: Sell 1280/1290 and take profit 1260.

Brent:

Sell oil for two reasons. Firstly, USDX hit one-and-a-half-month high, along with that oil has recently tested two-week low. Oil and US dollar historically have strong inverse relationship. In September oil and US dollar stuck to the same trend and only the previous week finally saw the right correlation. This week this tendency is highly likely to continue. Secondly, US oil output reached the new fifteen-month high and market participants expect this trend to prevail till the end of the year. Trading signals: Sell 55,50/57,11 and take profit 54,10.

S&P500:

Rates drop is expected in the second week of October, as strong growth of Treasury bonds yield may make investors start taking profit. Debt securities yield is growing due to expectations of Fed rate hike on December 13th. For years the market observed inverse relationship between bonds yield and shares rates. Currently both shares and bonds yield are moving to the upside. One or the other should fall. Which one will it be? I believe that will be shares, as many of them are at their historical high now and growing inflation expectations won't let bonds yield drop. According to CFTC large participants of the market keep actively shorting S&P500 futures, which also confirms downtrend. Trading signals: Sell 2550/2565 and take profit 2510.