Selling XAU/USD | 07 October 2016

The forecast for the week 3 - 7 of October:

XAU/USD:

During the week we should sell gold for two reasons. Firstly, increased"risk appetite" usually has a negative impact on the price of gold. Now investors are actively building their carry trade positions against reluctance of the US Federal Reserve to raise the interest rate as well as OPEC's decision to cut the oil production volume by almost 1 million barrels/day, which will be commenced in November. Since gold is a "safe asset", now there is no much need to buy it. Secondly, on Friday, October 6 we can be expect a positive release on the US labor market, which in turn will boost US dollar and will put gold under pressure as its price is denominated in US currency. Why do I expect a good employment report? This is proven by the two advance indicators: the 4-weeks' average value of unemployment benefits is now at the level of this year's low, whereas by the end of September the index of consumer confidence published by the Conference Board had reached its high since August 2007. The consumer confidence index rose to its highest level since the last recession in the United States. Against this background, this week we should open Sell positions on growth of quotations to 1320/1330 and take profit at 1302.

Brent:

In the first half of the trading week we should expect growth of quotations for two reasons. First, the last trading week the oil grew by 9% against OPEC's decision to cut oil production in November. This decision was not expected to be made by the oil cartel. Reaction of markets to such surprises is always hard and often played back for a long time. Second, on Friday, Baker Hughes once again reported about growth of number of the US drilling rigs by 7 units, but investors ignored this negative background, which suggests a large number of bulls in the market. If market ignores negative facts, we do not expect heavy falls and traders will be quickly buying back those declines in prices to move the market up again. The number of drilling rigs has also grown in Canada and Mexico by 7 and 1 units, respectively. In Mexico, the figure has reached high since April 29, and in Canada this is the high since February 19 of this year. Moreover, in the past two months, the number of rigs in Canada grew by 8 times. Oil companies tend to quickly boost their production capacity using an upward trend in the oil market increase their revenue and profit. Against this background, this week we should open Buy trades on decline to 49,60/48,50 and take profit at 50,92.

S&P500:

In the first half of the week we can expect development of an upward trend against positive macroeconomic statistics also boosted by demand in riskier assets worldwide. Important reports of this week include ISM data for the service sector and the manufacturing sectors, which may be slightly better than median forecast on the background of growth of expectations on inflation as well as against a higher employment rate, which is usually accompanied by enhanced business activity. On Friday, VIX fear index fell by 5.2%, whereas securities of the energy sector were leaders of growth in the US stock market. Friday was the last trading day of the month and the 3rd quarter, and if investors bought shares, it means that they are willing to risk in the first days of the new month. But then, we can see a wave of sales of shares after publication of the labor market report on Friday, 7 October. We can expect positive data on employment, which will lift yield of treasuries and increase expectations regarding the upcoming raise of the interest rate by FED. Against this background, this week we expect flat 2130 - 2190.