The Week Ahead – Precious Metals

The Week Ahead – Precious Metals

Previous week: 30 January 2017 – 03 February 2017

BOJ Policy Rate + BOJ Outlook Report + Monetary Policy Statement + BOJ Press Conference—Tuesday 31 January 2017

The BOJ left monetary policy unchanged in this January meeting despite the fact that there was no upward momentum in inflation in Japan. However days later, the 10 year JGB (Japanese Government Bond) sold off hard and with the yield of the paper reaching a high of 15 basis points. The Bank of Japan with its sights set at keeping the yield of 10 year JGB at 0% intervened in the secondary market and bought a bunch of them. The BOJ then said that it has increased its purchases of 5 to 10 year JGBs from 410 to 450 billion yen.

What we can read from this is that the BOJ is committed in its pledge of keeping interest rates at zero and will do whatever it takes to generate some kind of inflation. Ray Dalio predicts that the next round of stimulus will come in the form of Helicopter money by putting money directly in the hands of the consumer. This is in response to the fact that Quantitative Easing is reached its peak benefit.

http://www.zerohedge.com/news/2017-01-30/boj-keeps-rate-yield-target-hold-upgrades-growth-forecasts-usdjpy-slides

http://www.zerohedge.com/news/2017-02-02/spot-intervention-bank-japan-edition

DOE Crude oil inventory—1 February 2016 Wednesday

6.5 million barrels was added to the US inventory on the expectation of 2.6 million barrels.

Federal Funds Rate + FOMC Statement—Thursday 2nd February 2017 3am

The Fed decided not to raise interest rates during this meeting as expected. In their statement, there was no forward guidance on whether there was a chance of a hike in the March meeting. Seems like the Fed’s prediction of 3 rate hikes in 2017 is going to be an over estimation as they always do.

Bank of England Official Bank Rate + Monetary Policy Summary—Thursday 2nd February 2017

The Bank of England kept its monetary policy unchanged.

Non-Farm Employment Change + Unemployment Rate—Friday 3rd February 2017

In Trump’s first (non-full) month at the helm, the country created 227k non-farm jobs on the expectation of 170k. Unemployment rate ticked up from 4.7% to 4.8% on expectation of 4.7%. Average hourly earnings m/m came in at a weak +0.1% on expectation of +0.3%. When taken as a whole, the January jobs report is pretty bullish and is that is what the stock market is also telling us by rising +0.73% on the S&P 500.

 

Coming week: 30 January – 03 February 2017 (Central Banks)

RBA Cash Rate + RBA Rate Statement—Tuesday 7 February 2017

Expectation is for the interest rate to be unchanged at +1.50%. With the Aussie Dollar one of the biggest gainers in the past months gaining 7% from a low of 0.7160, will the central bank cut rates by a quarter point to remain competititve?

RBNZ Official Cash Rate + Statement + Press Conference—Thursday 9 February 2017

Expectation is for the central bank of New Zealand to keep interest rate unchanged at 1.75%. With a weakening Chinese economy, will the RBNZ continue its easing stance by dropping rates by another quarter point?

 

Trade Ideas

Silver long

On the daily chart of silver, we see that silver has broken through the resistance at $17.20 and is now finding support at that price. Going long at around $17.30 with target at $18.50 would give a good reward risk ratio.

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On the weekly chart, we see that silver has clearly penetrated the resistance at $17.20.

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Gold long?

Just like silver, gold has been grinding upwards and has the potential to move up another $100 an ounce. Gold has broken above the resistance at $1210. The next resistance comes in at $1250 and then $1300.

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WTI short?

Whilst the OPEC nations agree to cut production which led to a rise in oil prices to $54 a barrel, the American opportunists decided to repay the compliments by restarting their oil rigs. This week, the Baker Hughes US rig count continued marching northwards. It increased by 17 from 566 to 583. Crude oil inventories in US continued to rise by +6.5 million barrels this week.

http://www.investing.com/economic-calendar/baker-hughes-u.s.-rig-count-1652

When looking at the weekly chart of WTI, we see that it is having trouble breaking through the $54. When focusing at the last 9 weekly candsticks, we see that they are small candlesticks indicating a contraction in volatility which was akin to the 8 weeks of consolidation in price of oil in the middle of 2016. During that period of time, we see that there were many dojis and pinbars with upper and lower wicks where prices whipsawed up and down in a narrow range. With the current period of sideways consolidation, understanding the fundamentals of oil will come in handy when coming up with an opinion.

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When looking at the daily chart of WTI, we see that oil is taking support at around $51 and selling off at resistance at $54. At the moment, oil is trending sideways. My opinion is to go short at $54 and setting target at $51. Another opinion could be to go short at $54 to hold out for a bigger move down to trendline support at $43.

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S&P 500 long

On the weekly chart, the SPX seems to have broken out of its short term (5 weeks) sideways consolidation pattern (pennant) last week. This week, the weekly candlestick formed a bullish pinbar off support, indicating that there is more bullish movement that is yet to come.

With the probability of rate hikes (as implied by the Fed Funds Futures) come trickling back down (because the Fed refuses to provide forward guidance on possible hikes in rates in March), the discount rate used to calculate the present value of future cash flows of companies will continue to trickle down. This makes the present value of stocks go up, and hence provide a updraft to the S&P 500.

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FTSE 100

FTSE 100, just like the other equity indices in US, has also broken all overhead resistances and is pushing upwards to new all-time highs. FTSE 100 is now taking support at previously broken resistance. Going long at 7100 would be a decent trade.

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