Bears enter oil market | 24 February 2017

Forecast for the week from February 20th to February 24th:

XAU/USD:

I expect precious metal quotes to drop to 1217 region for two reasons. First of all, positive US macroeconomic statistics indicates that US currency uptrend will continue, which would have negative impact on gold. Strong January inflation report made J.Yellen announce that another rate hike may occur on any of the next Fed meetings. The leading US bank JP Morgan nets on the May 3rd meeting. JP Morgan influences investors expectations, so many of them may believe it. Second of all, American stock market is growing four weeks in a row and there are no signs of trend reversal. Stock market correction may start in case of sharp rise of US Treasury bonds yield. However, 10-year bonds yield now is experiencing flat of 2.4%-2.5%, while needed low is 2.64%. The only thing that can scare investors is renewed year highs. Yield rise to the specified region we may see in the future but it takes time. Trading recommendation: Sell 1238/1250 and take profit 1217.

Brent:

previous week oil market was closed in “red area” and I believe, this tendency is valid for current week too. The first quotes decrease reason is continuing rise of US inventories. From the beginning of the year oil inventories increased by 39.1 million barrels, only over last two weeks they have increased by 23.3 million barrels. Oil inventories along with strategic reserves have renewed historical highs and reached 1.21 billion barrels. The second reason is reduced by 0.9 million barrels per day oil consumption in US, and export for the first time ever reached 1 million barrels per day! In total we have OPEC that reduced oil output and the third oil producer in the world (USA) that increases it at a very rapid pace. Third reason is US dollar index that steadily holds at 100+, which is negative for oil, as energy is quoted in US currency. Trading recommendation: Sell 55,90/56,7 and take profit 54,55.

S&P500:

This week is a short one as on Monday NYSE trade is closed due to national holiday. The index is growing four weeks in a row and there arises question: when we will see correction? This week we are likely to see flat tendency. At first the market may be forced up to new high at 2360/2370 region, after what investors may start taking profit on long positions. No important macroeconomic statistics is expected this week, so in this context VIX dynamics is bothering me. Over the last 3 trading days this index went up by 10%, which is an alarm signal for bulls. Trading recommendation: flat in 2330 -2370.