Fed may cause oil and gold decrease | 03 February 2017

Forecast for the week from January 30 to February 3:

 XAU/USD:

It's time to sell gold for two reasons. First of all, strong uptrend on world's stock exchanges has traditional negative impact on gold price, as investors treat gold as safe asset. Second of all, on Wednesday, February 1st US Fed is going to announce monetary policy meeting results. I would expect regulatory body's claims to consider rate hikes on the next meeting in March. I am not saying that Fed will definitely raise interest rate on March 15, I believe, Janet Yellen will mention increased inflation growth rate and point the necessity of rate hikes continuation to prevent inflationary excess. FOMC may give a hint of rate hike to the market causing US dollar strengthening. Dollar strengthening, in its turn, has traditional negative impact on gold price. Trading recommendation: Sell 1195/1210 and take profit 1170.

Brent:

Over the last two weeks oil is trading within narrow range of 54,09 -57,20 and this week we may expect lower border testing. As mentioned earlier, Fed may make number of positive statements concerning future rate hikes in US, that will increase dollar demand and put pressure on oil quotes. Why FED may make such statements? First of all, it is possible due to growth of inflationary expectations. Two factors cause inflation growth: demand and costs increase. Now American economy has both. The latest Michigan Institute survey confirms this trend: January household inflationary expectations increased up to 2.6% against 2.2% in December. It is also worth to mention US and Canada drilling platforms number increase to the level of 566 and 200 units. These are the highest levels since November 20 and February 6, 2015 respectively. Therefore, supply increase is a negative factor for quotes. This is not likely to cause collapse of oil prices but decrease in quotes in the short term might be expected. Trading recommendation: Sell 55,90/57,25 and take profit 54,45.

S&P500:

We have an unclear situation for this week. On the one hand, we may expect reaching new historic high due to positive ISM macroeconomic statistics. US economic growth is ramping up, as illustrated by strong Michigan Institute consumer confidence data: in January figure was 98.5 points that is 13-year highest. On the other hand, Treasury bonds yield might go up after Fed meeting, which will force investors to take profit on long positions. Bond yields and stock price move in opposite directions, and as broad market index S&P500 reached its highest it is logical to assume that many traders will take profit. Trading recommendation: flat in 2285-2315.