The Week Ahead – Sheikhs vs Shale

The Week Ahead – Sheikhs vs Shale

Previous week: 06 February 2017 – 10 February 2017

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

The Reserve Bank of Australia did nothing. They left their interest rate unchanged at 1.50%

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

The Reserve Bank of New Zealand did nothing. They left their interest rate unchanged at 1.75%. There was dovish comments which caused the kiwi to be sold.

“New Zealand’s financial conditions have firmed with long-term interest rates rising and continued upward pressure on the New Zealand dollar exchange rate.  The exchange rate remains higher than is sustainable for balanced growth and, together with low global inflation, continues to generate negative inflation in the tradables sector.  A decline in the exchange rate is needed.”

http://www.rbnz.govt.nz/news/2017/02/official-cash-rate-unchanged-at-1-75-percent

US Crude Inventories—Wednesday 8 February 2017

There was a shocking 13.83 million barrels of crude oil built up in inventories in the last week. API came in at 14.27 million build. However, right after DOE’s figure came out on Wednesday, oil continued to rally strongly till the close of the week on Friday to the upper end of the range of $54.

 

Coming week: 13 February 2017 – 17 February 2017

UK CPI y/y—14 February 2017 (Valentine’s Day)

CPI in the UK continues to be strong and is expected to rise another three tenths of a percent from +1.6% to +1.9% for the month of January, mostly due to imported inflation caused by weak British currency.

US CPI m/m—15 February 2017

The expectation is for +0.3% rise in CPI m/m for January. The previous month was +0.3%. Having achieved the 2% inflation target, will the Fed be tempted to raise rates in March? Not to mention that last month’s jobs report released last Friday was pretty bullish. To be honest, I doubt that they will raise rates any time soon because they don’t want to be blamed for pricking the frothy stock and bond bubble.

http://www.tradingeconomics.com/united-states/inflation-cpi

US Crude oil Inventories—Wednesday 15 February 2017

Will the coming week be another week of double digit inventory build in crude? The fight between the Sheikhs and Shale continue.

http://www.economist.com/news/leaders/21635472-economics-oil-have-changed-some-businesses-will-go-bust-market-will-be

 

Trade Ideas

NZD/USD short?

The Reserve Bank of New Zealand mentioned that their currency is too strong and would want to see it drop in value. The reason for a lower currency value is for sustainable and balance economic growth and to generate some inflation.

http://www.rbnz.govt.nz/news/2017/02/official-cash-rate-unchanged-at-1-75-percent

The daily chart showed that NZD/USD has broken support at 0.7230 and is now retracing back to that support turned resistance zone. The next logical support zone comes in at 0.7000. If the market retraces high enough to the 0.7230 kill zone and gives a reasonable sell signal, the reward to risk ratio of this trade idea would be pretty attractive.

ed 1

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 8 from 583 to 591. Crude oil inventories in US continued to rise by +13.83 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 10 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.

ed2

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.

ed3

However when looking at the daily chart, we see that oil has been strong for in the last three trading days, rallying from $51 to $54 without any pause. It is advisable to wait for some bearishness in the daily chart in the coming week before selling oil short. Purely based on the chart, I would not be surprised to see the $54 resistance  taken out and oil rally straight up to $60.

 

The Week Ahead - Bitcoin The Week Ahead - Precious Metals