COMMODITIES GLOBAL MARKET OVERVIEW & CYCLICAL ANALYSIS (Weekly commentary 19/05/2017)
Eur/usd: Euro’s strength led the pair from 1.0840 (local low on 12.05.2017 after dropping from a high of 1.1024) to 1.1213 (high on 19.05.2017). Important resistance area up to 1.1260 level may contain further upside. Confirmation for the validity of this plan would be if prices stay below 1.1185 initially. Most significant level that confirms the expected downturn remains the 1.1024 level. Any rallies to the upside may be used to add to short positions. Further upside above 1.1260 level opens the way for 1.13.
Fed minutes are going to be released on Thursday and market expects to realise how determined the FED appears to reduce further its balance sheet withdrawing liquidity from the market.
Strategy: We use any rallies into the area of 1.1210/1.1247 to open short positions on €uro targeting initially the 1.09 level. Upside risk should be limited either by use of stops above 1.1257, or by applying strategies with options (by creating synthetic short puts, delta=0.5)
BRENT OIL: Most recent local low at 46.50$/brl proved to be the pivot for a new wave up which led the prices – so far – to local highs around 54$/brl. Crucial support level around the area of 51$/brl keeps the uptrend intact with a possible initial target at around 56$/brl before some profit taking leave the prices to drop no more than 2-3$ and before the uptrend resumes once more till completion near levels of 56.60/58/61$/brl. Worth taking into account the OPEC meeting on Thursday May 25th, 2017. Oil ministers from OPEC and other oil producing countries will meet to decide whether to extend their production agreement beyond a June 30 deadline. Last November 2016 OPEC and another 11 non OPEC producers, including Russia, decided to cut daily output by 1.8bn barrels between January 1st and June 30th 2017. Nevertheless, the remedy had little impact on global inventories due to rising supply by non-participating to the accord producers, such as Libya, US etc. Analysts are expecting extension of output cuts for a further nine months instead of six – previously expected.
SPX/ES(Mini Future SP500): After a corrective to a local low at 2344 the market recovered above crucial level at 2370/2365. If the market manages to stay above these levels, then it has very good chances of advancing to new all-time highs towards 2410/15 and then 2450 area.
Big picture remains that market is just about to complete an uptrend that started from a low of 666 in 2009 (just after Lehman Brothers collapse) and lasted so far 8 consecutive years with main drive excessive liquidity injected by the FED through Quantitative Easing programms. Since the end of last year FED seems to be willing to change course of action as the Economy seems to recover and inflation came closer to 2% target. Reduction of FED’s Balance Sheet may lead to further liquidity drain and this may affect equity lofty prices. This is just a reminder for the next day.
QCIP UK – Commodities Trading Division