Buy oil on pullbacks | 18 March 2016

The forecast for the week of March 14-18:

XAU/USD:

During the week, we should expect drop of the precious metal for two reasons. Firstly, ECB decided about a further ease of its monetary policy, which supported demand in "risky" assets. Eurozone monetary authorities decided to decrease the interest rate by bringing its level to zero. None of the participants in the financial markets expected such actions from Mario Draghi and his colleagues. Since gold is treated as the "safe" asset by investors, increase in "risk appetite" will contribute to the outflow of capital from the XAU/USD. Nor can we ignore the fact that ECB lowered its inflation estimation for the Eurozone for 2016 - 2017, which also does not encourage "bulls" on the yellow metal, as gold is usually used as to hedge against inflation risks. Secondly, the central event of the week was held on Wednesday - FOMC meeting. No one expects rise of the interest rate and inactivity of the monetary authorities will not upset the market, cause such expectations are already put in the quotations. We should note that Janet Yellen might oncee again hint that the US monetary authorities will be ready to raise the interest rate at its next meeting. Positive macroeconomic statistics on the labor market leaves FED a room for maneuver. Yield of 2-years treasuries, which reflects investors' expectations on the Fed's decision, has increased by 12.3 basic points to the level of 0.96% since the last session. In this regard, we can expect moderate strengthening of the US dollar, which will have a negative impact on gold as the price of commodities is denominated in US dollars. Against this background, we should open Sell position on growth of quotations to 1265/1280 and take profit at the level of 1230.

BRENT:

The last four trading weeks in a row, oil price has been following an upward trend and many traders ask when the correction will be? In my opinion, we should count on a strong decrease in quotations and pullbacks, investors will build long positions for two reasons again. First, market participants for the two weeks in a row have been ignoring weak statistics from the United States. Crude oil reserves increased by 14.25 million of barrels for the period whereas the consensus forecast was 6.9 million barrels. Deviation from the median was a bit no less 106%, but traders did not think to sell oil contracts, and on the other hand, built up long positions. This pattern indicates presence of strong sellers who have deep pockets, cause they are ready to buy on news and got into drawdown. In the old days, when we saw sales on the market, such statistics are more than enough to drop quotations by at least 5%. Secondly, the International Energy Agency on Friday revised its outlook on the market. Now we expect a steady decline in production outside of OPEC, especially in the USA. Making big bets on the IEA review is not necessary, as this organization, though is reputable, change its estimations often. However, this factor can be regarded as positive in the short-term. Goldman Sachs Bank adds "fuel to the fire" again. A month ago, the bank economists actively campaigned for a new drop of quotations to $ 20/barrel. Now, there is a new forecast, which indicates that the "black gold" forms the bottom. This is a highly respected investment bank, and it is possible that some of the speculators would "listen to advice" and close their short positions, which will also put a positive impact on the price energies. Against this background, we should open Buy positions on drop of BRENT to 39.00/37.00 and take profit around 41.00.

S&P500:

In the first half of the week we expect the uptrend to continue as "risk appetite" of investors is growing. Easing monetary policy by the ECB was welcomed by players of the European and American stock markets and in this regard, we can expect inflow of capital to the equity markets. On Tuesday, our attention should be paid to publication of the retail sales report. In January, average earnings rose by 0.5%, which allow us expect growth of the consumer spending, as in the United States rise in real income was recorded. Positive expectations confirm the rising dynamics of the indicator of consumer confidence from the University of Michigan. In this connection, we can expect release of the data, which will be slightly better than median forecasts and support the stock market. However, the trend may change in the Wednesday's evening. On the one hand, no one expects the US Federal Reserve to raise the iterest rate, which is a positive factor for the stock market. However, these expectations have been here for over a month, and for the most part are already included in the quotations. On the other hand, at the press conference the head of FOMC Janet Yellen will not bypass a strong labor market and will signal to investors about a possible raise of the interest rate at the next meeting. Core CPI index has been 2% for the last three months, and, according to the consensus forecast in February, the figure will be above this mark once again. In this regard, traders of the stock market will close long positions, and we will see development of the downtrend. The same trend is confirmed by growth of the short-term Treasury yields Against this background, this week we should expect a flat market in the framework of the 1970-2070 range.