Gold - only South | 30 Outubro 2015

The forecast for the week October 26 - October 30:

XAU/USD:

This week we should open short positions in precious metals for three reasons. Firstly, the verbal intervention of the ECB chief Mario Draghi made on 22 October knocked the single European currency down, which caused vertical growth of the dollar index of the USDX basket, cause the euro has the greatest weight in the basket. Mario Draghi pointed to the high rate of the single European currency, which increases the risks for recovery of the growth rate of CPI in the Old World. Thus, the dollar received a major trump card in the fight against its rival, which will weaken the EUR/USD pair in the forex market finally. A stronger dollar has traditionally been a negative factor for the "yellow metal", because its value is denominated in the US currency. Secondly, continuation of the downward trend in the oil market will help to reduce expectations on inflation in the G-7 countries, which is also a negative factor for the XAU/USD. Last week, OPEC participants and other major oil producers met in Vienna and failed to agree on reduction of production quotas, despite the entreaties of Venezuela representatives. Moreover, two world leaders in the oil production (Saudi Arabia and Russia) opposed the proposal radically. Some countries such as Norway, Oman and Azerbaijan ignored the event, referring to the fact that current world prices ned no adjustment. In this regard, we can expect an increase in demand in the "black gold" on markets again, which will put a downward pressure on oil prices as well as the precious metal. Thirdly, increase in demand in "risky assets" is usually negative for gold, as investors see the yellow metal as a "safe asset". This week we should open Sell positions with XAU/USD on growth of quotations to 1168/1178 and take profit at 1125.

XPT/USD and XPD/USD:

During the week we should expect predominance of "bears". The verdict of the European Central Bank on Thursday identified the short-term trend for the EUR/USD pair in the Forex market and now we can expect growth of quotations of the dollar index basket. The last week, USDX had added 2.59% and now it is possible to expect growth of quotations to strong resistance level 98.42, which implies upside potential 1.27% from the current levels. As the cost of metals is denominated in US dollars, upsurge of the US currency means decrease of their value. The overall negative sentiment on the commodity market should be also commented: CRB index, which is calculated on quotations of 19 goods, has been ending the session in the "red zone" (general decrease in quotations is 4.78%) for two weeks in a row. Investors are now pessimistic about commodity assets and therefore will consider other markets for investment. This week we should open Sell positions with XPT/USD on growth of quotations to 1010/1025 and take profit at 975. We also should open Sell trades with XPD/USD on growth of quotations to 704/721 and take profit at661.

S&P500:

In the last week of October we expected the upward trend in the US stock market for two reasons. Firstly, release of the US GDP for the third quarter can please market participants with its positive data due to high growth of the service sector and increasrf household expenditure. According to reports from ISM, The service sector in the third quarter showed a high growth rate that makes up for a slowdown in the manufacturing sector, as the oil market has been stagnant because of the low cost of "black gold". Household spending in the third quarter also went down thanks to fall of the unemployment rate to its lowest level since April 2008, as well as growth of average earnings. Positive dynamics is confirmed by high demand observed on real estate market: if Americans believe in "the future", they are active in the market. The only negative factor for the US economy is the revaluation of the national currency, which causes an increase in imports and reduces competitiveness of exporters. Due to growth of quotations of the US dollar, multinationals can suffer from notable losses. Companies such as Coca-Cola, Procter & Gamble, Johnson&Johnson reported for the third quarter a serios reduction of revenue against the backdrop of the revaluation of foreign exchange rates. However, the balance of trade is not a significant component of US GDP and the negative impact of this factor will not be as significant. Taking into account all factors, in my opinion, we can be expect release of figures within the range of 2.1% -2.7%, which is better than the consensus forecast, and will support the US stock market. Secondly, the world still has a strong demand in the "risky assets". Leading stock indicators of the planet finished the last week with a significant increase in prices, indicating a steady upward trend, which is very likely to continue rather than changing its direction.This week we should open Buy trades on S&P500 based on expectation of decline of quotations to 2067/2055 and take profit at 2099.