Oil Reversal is Coming | 05 May 2017

The Forecast for the Week of May 1-5:

XAU/USD:

In the first week of the May we may expect moderate quotes rise along with profit taking on risk assets. Gold is considered to be a safe asset, so it gets certain support while there's correction on stock exchanges. Scenario of this week correction on the world's leading stock markets is supported by USA and Germany Fear Index dynamics. The indicators are at their 10-year lows, which indicates shares tendency to decline.

CFTC speculative positions dynamics also confirms investors' interest in gold. Longs have increased 6 weeks in a row and now have reached their highest since November 18, 2016. Meanwhile, over the last two weeks speculators have reduced silver purchase, that means reducing risk appetite. Trading recommendation: Buy 1253/1240 and take profit 1278.

Brent:

Over the last two weeks oil has traded in red zone, as we expected. Initially our forecast involved quotes drop to region of $51,00/$48,00 per barrel before OPEC summit followed by smooth price rise to region $60 per barrel. This scenario is still valid, so we will expect another small quotes drop followed by reversal. Financial markets operate in such a way that before the strong trend beginning the prices make a significant move in the opposite direction. The last five months' low is at 49,91, the perfect scenario would be this low renewal and then trend reversal.

We expect quotes rise to psychological level region in $60/barrel in mid-term (this summer may already see these levels) for three reasons. First of all, OPEC is committed to its plan to extend oil output reduction agreement. The Saudis are determined to make it work and call other members for agreement extension. This is a very important signal. We would like to remind you that the previous cartel reduction agreement made Brent quotes to jump to the upside by 22.7%. Now market may easily rise by 10-15% after agreement extension.

Second of all, in US oil inventories increase season is coming to the end. Every year between January and May there is rise of oil inventories in US followed by the opposite tendency. In general, we can already see this tendency – oil inventories have reduced over the last 3 weeks in a row by 6.84 million barrels. As you remember, in March inventories increased by 15.35 million barrels. Demand is gradually increasing and is going to reach high levels in the beginning of summer already, which will have positive impact on oil quotes. Trading recommendation: Buy 51,00/48,00 and take profit 52,11.

S&P500:

Considering weak US GDP release for the first quarter, we need to sell S&P500 futures. American economy has reached its limit in 2016 and now we can see a modest growth rate. Those, who prefers to earn on market collapses and are waiting for one this year, will be disappointed as we won't see American market collapse this year. Why? The answer is simple - Fed policy is still expansionary, despite of several rate hikes. Such a modest GDP growth is a reason for correction.

Which chart spot to choose for pressing Sell button? It would be perfect to sell in the region of historical high of 2402. Another question is whether market sharks will allow us to reach this point or not. Will the speculators push the market higher or did correction is already started previous Friday? Now it's difficult to give an answer to this question. In order to avoid pointless forecasts, we may sell either from the current levels or little higher than psychological level of 2400. Trading recommendation: Sell 2400/2415 and take profit 2365.