Four Reasons to Sell Brent | 17 March 2017

Forecast for the week from March 13th to March 17th:

XAU/USD:

The beginning of spring has passed in red zone for gold. Over the last two trading weeks gold quotes have decreased by 4.16%. This week we expect continuation of downtrend. First of all, strong US NFP macroeconomic statistics allows us to count on increase of American shares and US dollar which is, in its turn, a negative factor for precious metal's quotes. When shares and dollar rise investors hurry to get rid of gold.

Second of all, CFTC net speculative positions on gold declined by 30.1 thousand contracts after two weeks of growth in a row. Such decline pace is the fastest over the last four months. Investors sentiments have changed drastically, and I believe it has something to do with FOMC rate hike expectations. Trading recommendation: Sell 1207/1220 and take profit 1184.

Brent:

Last week session was closed with oil quotes decline by 7.9%, and we believe that decline continues this week. Bulls have no power at the moment, bears rull the market. There are four reasons for oil weakening. First of all, oil producers don't like Chine macroeconomic statistics. China February trading balance is negative. According to the two-month results, surpluses have declined by 23.4% per annum. China economic growth, therefore, is slowing down and China oil demand declines respectively.

Second of all, US oil output reached new yearly high and oil inventories have increased over the last nine weeks in a row. Moreover, over the last four weeks in a row US oil inventories have consistently renewed their historical highs, exceeding 2016 rates approximately by 8%. Last Friday Baker Hughes again reported increase in US drilling platforms by 8 units up to 617, which is a new high since 10/02/2015. Such situation is likely to cause new wave of oil quotes drop.

Third of all, US Fed may implement rate hike on March 15th, which will have a positive impact on greenback quotes and negative impact on oil quotes. And finally, according to CFTC, large speculators are taking profit on oil market long positions, which also matches decline expectations. Trading recommendation: Sell 52,90/54,00 and take profit 50,45.

S&P500:

In the first half of the week while Fed meeting results are not published yet, we expect increase in quotes for tree reasons. Firstly, positive February labor market statistics indicates accelerating of US economic growth. Investors will expect corporate income rise which is always good for shares quotes. Secondly, last Friday VIX index decreased by more than 5%, that allows us to count on risky assets demand increase. And finally, according to CFTC large speculators have ramped up futures contracts buying up to 51 thousand contracts. Such dynamics shows that investors are very positive about American shares perspectives.

Of course, it is also worth to mention Fed meeting. Fed may actually raise interest rate by 0.25% this Wednesday on March 15th. That may cause profit taking on long positions and rollback on the market. When Fed raised rates in 2015 and 2016 stock market decreased by 3.1% and 1.1% respectively. Now we may face the same situation. Trading recommendation: Buy 2370/2350 and take profit 2395.