Brent is an obvious outsider | 29 July 2016

The forecast for the week 25 – 29 of July:

XAU/USD:

This week we have two reasons, why we should expect a moderate decline of gold. First, strengthening of US dollar usually has a negative impact on gold and with the account of strong US reports, we can expect a continued upward trend on USDX. On Wednesday the results of the US Fed's meeting will be announced. We do not expect any hints to tightening of the monetary policy. Fed's will point to economic growth and a possible raise of the interest rate at the end of this year. In this context, USD may continue its gradual upward movement, which will affect the value of gold. Secondly, global stock markets remain to be optimistic, which usually has a negative impact on gold as a safe asset. It is quite possible that after the Fed's meeting investors will decide to settle in profit on bonds in the stock markets, but, nevertheless, in the first half of the week, this factor will put XAU/USD under pressure. During the week we should open Sell position on growth of quotations to 1328/1338 and take profit at 1313.

Brent:

Bearish mood on oil is getting strong and in this regard, we should trade along the trend. There are two key factors, which will increase the pressure on black gold. Firstly, this is the increase of oil production in the United States. Over the last two weeks, US production increased by 66 thousand barrels/day. The reports by the oil services company Baker Hughes indicates continuation of this trend. Over the past week, the number of drilling rigs in the United States and Canada has increased by 14 and 4 units, respectively. Thus, in recent weeks the number of drilling rigs in the US increased by 30 units, and since the beginning of summer, the number of rigs has increased by 47 units. Thus, the medium-term trend on increase of oil production is emerging, which is a negative factor for the market of black gold. Secondly, t strengthening of US dollar against its major rivals against positive macroeconomic reports will put oil under extra pressure as the commodity is denominated in the US currency. During the week we should open Sell position on growth of quotations to 46.30/47.50 and take profit at 44.50.

S&P500:

The corporate reporting season in the United States is running with varying degrees of success: positive reports by J&J, Morgan Stanley and General Motors were followed by negative releases by Halliburton, Intel and eBay. The global leader of car industry GM has reported growth of net profit in the second quarter by 157%, and one of the leaders of high technologies sector Intel reported a decline of net profit by more than twice. In general, IT-sector shows a rather poor performance. For example, in the second quarter was closed by Yahoo with a net loss as of $439.9 million, which is 20 times as much as the last year's figure. The last three quarters in a row, the company has been operating at a loss, which for that period amounted to $4.97 billion. The main event of the week will be announcement of resuls of the US Fed's meeting. If six months ago this event was awaited with caution, after Brexit and slowdown of the economic growth in China, investors could catch a break. Nobody expects raise of the interest rate, the most optimistic forecast implies a possible raise of the in interest rate as late as on December 14. The monetary authorities will point to the effect of accelerated economic growth, and at the same time, point to the external risks prevening them from raising the rate today. However, this raise may be introduced at any later meeting. Is it positive or negative for the US stock market? Now it is hard to say, as investors may begin to take profit on Long trades and justify it by fear of the market around possible tightening of the monetary policy by Fed's. This week we should expect the flat within the range of 2140 – 2190.