Oil Continues To Rebound On U.S. – Iran Tensions

Oil Video 23.04.20.

U.S. Iran Tensions Support Short-Term Bullish Sentiment But Are Unlikely To Impact Physical Oil Market

Oil prices continue to recover the losses incurred on Tuesday as U.S. and Iran traded threats. U.S. President Donald Trump stated that any Iranian gunboats that harrassed U.S. ships would be destroyed. In turn, Iran stated that if U.S. ships threaten Iran’s safety, Iranian military would attack them.

At the beginning of this year, U.S. and Iran were close to a real conflict, and WTI oil traded above $60 per barrel. Today, the elimination of Iranian oil exports won’t change much for the physical oil market in the near term since the gap between supply and demand is just too big.

The market needs a material increase in oil demand, and nothing can substitute this ultra-important catalyst. In addition, it looks like the comments from the U.S. and Iran are used as an “excuse” to initiate speculative positions in oil which has declined too far too fast due to market panic.

At this point, oil prices seem ready to go back to pre-panic levels near $20. After this, traders and investors will try to evaluate the future oil storage situation in June.

It is obvious that the market will be in deep imbalance in May, but the supply/demand balance in June depends on a number of catalysts including the duration of lockdown measures, which is currently unknown.

The Decline Of U.S. Production Is The Only Real Solution To The U.S. Storage Problem

As per the U.S. Energy Information Administration, the country’s oil production peaked at 13.1 million barrels per day (bpd) just before coronavirus hit the U.S. The latest weekly report showed that production declined to 12.2 million bpd.

It is clear that more production cuts are needed to improve the situation on the storage front. The U.S. cannot participate in coordinated production cuts due to anti-trust laws and also because so many independent oil companies are producing oil.

However, the U.S. oil production will continue to trend down in a natural way as challenged producers shut uneconomic wells. I’d argue that production levels shown in the following EIA weekly reports are just as important for market sentiment as inventory levels.

Inventories are going to rise because of the impact of virus containment measures, but the speed at which producers will react to lower prices is a major unknown catalyst. A rapid decrease in U.S. production could provide some much-needed support to WTI prices.

Silver Price Daily Forecast – Silver Continues To Rebound After Recent Sell-Off

Silver Video 23.04.20.

Silver Settles Above $15.00

Silver returned back above 20 EMA as the market situation stabilized and rebound in oil led to an increase in investor optimism.

Interestingly, the U.S. dollar continues its upside move against a broad basket of currencies, and the U.S. Dollar Index has settled above the 100.5 level. Typically, positive performance in riskier assets led to weakness of the U.S. dollar which serves as a safe haven asset of last resort during the current coronavirus crisis.

This is an important factor for silver since stronger U.S. dollar is a bearish catalyst for precious metals since it makes them more expensive for buyers who have other currencies.

Simultaneous upside in both the U.S. dollar and the precious metals is a sign of market confusion. On the one hand, investors and traders want to get exposure to riskier assets as they fear that they will miss the next leg of the upside move in the world market. That’s the so-called “fear of missing out”, or FOMO.

On the other hand, the bad economic data and the continued uncertainty on the economic front leads to increased purchases of safe haven assets like the U.S. dollar.

It is also possible that the unprecedented monetary support measures which are being implemented by governments and central banks all over the world have distorted the marketplace. There’s so much liquidity that it can lift the prices of both the safe haven assets and the riskier assets at the same time.

Technical Analysis

silver april 23 2020

Silver is back to the trading range between the 20 EMA near $15.00 and the 50 EMA at $15.50. As the time goes by, the spread between the 20 EMA and the 50 EMA narrows, so traders should expect some more decisive action in the next few weeks.

The 50 EMA serves as the first resistance level for silver. In case it is breached to the upside, the way to pre-crisis levels at $16.50 will be open. However, silver will also have to deal with resistance near the recent highs at $15.80.

On the support side, the 20 EMA serves as the first support level for silver, followed by major support at $14.60. In case the support at $14.60 is breached to the downside, I’d expect rapid downside momentum in silver.

U.S. Stocks Mixed After The Initial Jobless Claims Report

U.S. Initial Jobless Claims Report Shows That 4.4 Million Americans Filed For Unemployment Benefits

The eagerly awaited U.S. Initial Jobless Claims report has just been released, and it showed that 4.4 million of new claims were filed compared to the analyst consensus of 4.2 million.

Since the beginning of the crisis, the economy has lost almost 26.5 million jobs. This is a hit of an unprecedented scale.

The good news is that Continuing Jobless Claims were a bit better than expected at 16 million compared to consensus of 16.5 million. However, it’s worth noting that Continuing Jobless Claims data is lagging Initial Jobless Claims data by one week.

Following the report, the S&P 500 futures are showing minor gains in premarket trading. As usual during the current crisis, the situation may change very fast, so investors and traders should prepare for another day of increased volatility.

Oil Continues To Rebound

WTI oil prices continue their upside move as the market recovers from the recent shock when the May 2020 contract declined into the negative territory.

There’s no clear catalyst for the move, although renewed tensions between U.S. and Iran may have served as a positive factor for oil.

In my opinion, oil is pushed to the upside by speculative investors and traders who want to scoop up cheap oil contracts after the unprecedented downside moves.

The situation in the physical oil market is still unclear, and it remains to be seen whether the recent oil production cut deal will help deal with the oil storage problem.

Equinor Cuts Dividend, Other Oil Majors In Spotlight

The Norwegian major oil company Equinor has decided to cut its dividend by 67%. Traditionally, major oil companies treated their dividends as sacred cows. They were ready to cut costs, cut investment or stop share buybacks, but the dividends were kept in place.

It remains to be seen whether Equinor’s decision will lead to a wave of selling in other major oil names like Exxon Mobil, Chevron, BP, Royal Dutch Shell, Total. Even if they do not cut their dividends during this earnings season, the market may start discounting such a possibility in the future.

A sell-off in major oil names will certainly put pressure on the general market so even those investors and traders who do not have positions in the oil space should watch the above-mentioned stocks for a few days to see whether they manage to hold near their current levels.

GBP/USD Daily Forecast – British Pound Gains Ground Ahead Of U.S. Initial Jobless Claims Report

GBP/USD Video 23.04.20.

A Data-Heavy Day

GBP/USD continued to rebound as improvements on the oil price front helped global markets gain some optimism. Interestingly, the U.S. Dollar Index, which serves as a gauge of market fear during the current crisis, is showing no signs of weakness and continues to stay above the psychologically important 100 level.

Today, the recent market optimism will get tested by economic news. In the UK, traders will get a chance to evalate the new data on Flash Manufacturing PMI, Flash Services PMI and Flash Composite PMI.

Flash PMI reports are based on the survey of 85% purchasing managers and present a good chance to estimate the ultimate PMI numbers.

As the lockdown measures put an enormous pressure on services, the Flash Services PMI is expected to come at 29 compared to previous reading of 34.5. Numbers below 50 show contraction.

The situation on the UK manufacturing front is better but Flash Manufacturing PMI is expected at 42 compared to the previous report of 47.8.

In the U.S., traders will have to digest a flurry of data including Initial Jobless Claims, Continuing Jobless Claims, Flash Composite PMI, Flash Services PMI, Flash Manufacturing PMI and New Home Sales.

The main focus is on U.S. Initial Jobless Claims report which is expected to show that 4.2 million of Americans filed for unemployment benefits, taking the total number of initial unemployment benefit filings over 26 million since the beginning of the crisis.

At the same time, Continuing Jobless Claims are also of great interest since this report will show whether the measures to help businesses preserve jobs are working or not. The current consensus for Continuing Jobless Claims is 16.5 million.

Technical Analysis

gbp usd april 23 2020

GBP/USD continues to rebound from the support level at 1.2250. The nearest resistance for the pair is located at the 20 EMA near the 1.2400 level.

In case this resistance is breached to the upside, GBP/USD will head towards the 50 EMA at 1.2465. A successful test of the 50 EMA will open the way to recent highs at 1.2650.

On the support side, the breach of the nearest support level at 1.2250 will lead to increased downside momentum and take the pair closer to the next support level at 1.2170.

USD/CAD Daily Forecast – Oil Price Rebound Boosts The Canadian Dollar

USD/CAD Video 22.04.20.

USD/CAD Fails To Settle Above The Resistance Level At 1.4250

USD/CAD pulled back after unsuccessful test of the resistance level at 1.4250 as global market optimism and rising oil provided support for the Canadian dollar.

Oil has finally found some support following several days of unprecedented downside. The situation for the Canadian oil, especially Western Canadian Select, remains very challenging but any upside moves are welcome in the current environment.

Earlier, the U.S. dollar was correcting against a broad basket of currencies, and the U.S. Dollar Index made an attempt to get below the 100 level, but failed to do so and rebounded closer to 100.50.

In my opinion, the U.S. dollar dynamics against a broad basket of currencies show that market participants want to maintain their exposure to safe haven assets even during periods of global market upside because the economic situation is set to be very challenging for the upcoming months.

Canada has recently released Inflation Rate data. In March, inflation increased 0.9% year-over-year compared to analyst consensus that called for an increase of 1.2%. The month-over-month data showed that inflation declined by 0.6% compared to consensus of -0.4%.

Prices are falling faster than expected due to the negative impact of coronavirus containment measures on demand. It remains to be seen whether deflation will turn into a longer-term problem. At this point, it looks like many developed countries will face very low or negative inflation in the following months due to the virus.

Technical Analysis

usd cad april 22 2020

The resistance level at 1.4250 has proved its strength. It has been tested many times during both the previous upside move and the current upside move, and each time USD/CAD met heavy selling pressure.

It looks like USD/CAD will need additional catalysts to get above 1.4250. In this case, I’d expect rapid upside momentum which will take the pair to the next resistance level at 1.4330.

On the support side, the 20 EMA at 1.4065 serves as the first material support level for USD/CAD. In case this support level is breached to the downside, USD/CAD will head towards the 50 EMA level at 1.3920. It is also possible that USD/CAD will get some support near 1.4000, at the low of the recent pullback.

Oil Rebounds After Violent Moves Of The Previous Days

Oil Video 22.04.20.

Oil Gains Ground After Historic Downside Moves

Oil prices have finally rebounded following May 2020 contract historic move to the negative territory on Monday and a major downside move of the June 2020 contract on Tuesday.

The optimism seems to be fueled by another round of U.S. aid to the economy and traders’ speculative desire to scoop up cheap oil in hope for better supply/demand balance in June.

I’d note that the trading action is very volatile, and it’s clear that market participants have yet to determine suitable levels for oil prices in the current environment.

In all likelihood, the search for appropriate levels (and the decreased volatility that comes with such levels) will take some time so oil price dynamics will dominate global headlines in the upcoming days.

Some southern U.S. states have decided to start reopening their economies, so the market will soon get data on how fast oil consumption increases when certain measures are lifted.

At this point, analysts and traders are walking in the dark, and there are no reliable forecasts on how fast oil consumption will grow once the virus containment measures come to an end.

In addition, the move to reopen the economies is very important from a healthcare point of view – any sign of a second virus wave will hit global markets very hard.

Inventories Continue To Increase

U.S. Energy Information Administration has just reported that crude oil inventories increased by 15 million barrels, while gasoline inventories were up by 1 million barrels and distillate inventories increased by 7.9 million barrels.

The continued increase in inventories is not surprising given the lockdown measures that were implemented across the U.S., and the main question is if the country will have major storage problems in May.

Domestic oil production continued to decrease and fell from 12.3 million barrels per day (bpd) in the previous week to 12.2 million bpd. The decline in domestic production is very important as it helps improve the supply/demand balance.

For a few days, the price action in the oil market will likely depend more on sentiment rather than data. The reason for this is that there’s not enough data to evaluate the supply/demand balance in June, and traders will need more time and information to come to their conclusions. Meanwhile, traders and investors should expect major oil price volatility.

Silver Price Daily Forecast – Silver Rebounds After Yesterday’s Sell-Off

Silver Video 22.04.20.

Upside In Equity Markets And Weaker U.S. Dollar Highlight The Return Of Risk Appetite

Silver returned back to the $15.00 level as the situation on the oil price front showed signs of stabilization and equity markets started to rebound after yesterday’s sell-off.

As I noted yesterday, the support level at $14.60 looked strong, and silver failed to get below it during the first attempt.

At this point, the risk appetite returned to the global markets, and the U.S. dollar is losing ground against a broad basket of currencies – the U.S. Dollar Index has declined towards the 100 level. Weaker U.S. dollar is bullish for silver as it makes it less expensive for buyers who have other currencies.

Gold is also enjoying upside and has returned back above the $1700 level. I maintain my view that gold price upside is very important for the continuation of silver price upside since it attracts new funds into the whole precious metal segment.

Today, there are no big news on the U.S. economic front, so global markets have a good chance to spend the whole trading day in the risk-on mode. Tomorrow, the markets will have to deal with the U.S. Initial Jobless Claims release, which is expected to show that 4.15 million of Americans filed for unemployment benefits.

Technical Analysis

silver april 22 2020

Currently, silver is near the first resistance level at the 20 EMA at $15.00. Previously, this level has proved to be a material level for silver, so it won’t be that easy to go through it during the first attempt.

In case silver manages to settle above the 20 EMA, it will find itself in the range between $15.00 and the 50 EMA at $15.55. If silver gets above the 50 EMA, I’d expect some minor resistance near recent highs at $15.80.

The breach of the $15.80 level will open the way to pre-crisis levels at $16.50. In this scenario, I’d expect that silver will get material short-term upside momentum.

On the support side, the recent lows near $14.60 proved to be a major support level for silver. In case silver settles below this level, the sell-off will likely intensify, and silver will test the next support area between $13.80 and $14.00.

 

U.S. Stocks Set To Open Higher As Oil Prices Stabilize

A Pause In Oil Price Downside Helps Stocks Gain More Ground

S&P 500 futures are gaining more than 1% in premarket trading as oil prices have finally stopped falling like a rock. Both WTI and Brent oil had volatile trading sessions, swinging between gains and losses, but are mostly flat compared to the close of the previous session.

Interestingly, the market has shown its ability to support oil-related equities in recent days, and major oil producers like Exxon Mobil and Chevron or services firms like Schlumberger and Halliburton had decent performance compared to what could have happened on these dark days for the oil market.

It remains to be seen whether this trend will continue in the long run, but the stock market’s readiness to support oil equities at times of unprecedented downside in the oil market may signal that they are ready for a short-term upside move.

More Help For Small Businesses

The damage dealt by virus containment measures is enormous so it’s not surprising to see the expansion of aid programs. This time, the U.S. will provide almost half a trillion dollars to help small businesses, hospitals and impove coronavirus testing.

At this point, U.S. has no funding problems as demand for U.S. Treasuries stays very healthy and their yields continue to fall. The same can be said about the U.S. dollar, although it has corrected a bit following a few days of upside.

Netflix Misses Earnings Estimates And Predicts Slower Growth In The Second Half Of The Year

Netflix reported GAAP earnings of $1.57 per share compared to analyst estimates of $1.64 per share. The company added almost 16 million new subscribers which was higher than expected.

However, the company stated that the second half of the year may be more challenging as many potential customers might have already signed up to the service, pushed by orders to stay at home.

As I wrote earlier, the market expectations for Netflix were high, and it will be interesting to see whether the stock can hold at current levels after the earnings report. Currently, Netflix is down about 2% in premarket trading. Netflix’ reaction to the earnings report may set the tone for the trading in other big tech shares during this earnings season.

GBP/USD Daily Forecast – Stabilization After Yesterday’s Downside Move

GBP/USD Video 22.04.20.

Risk-Off Sentiment Boosted U.S. Dollar

GBP/USD breached the 20 EMA near 1.2400 to the downside and gained rapid downside momentum. The key catalyst for the move was the sell-off in global markets, which was triggered by a major downside move in the oil market.

Today, oil feels no better, and WTI oil prices race towards the $10.00 level while Brent oil prices are barely above $16.00. This situation creates demand for safe haven assets like the U.S. dollar.

The U.S. Dollar Index, which measures the U.S. dollar’s strength against a broad basket of currencies, has firmly settled above the 100 level and continues the upside move.

As I noted yesterday, the volatility in the forex markets has generally decreased, but it may return in case of increased rush to safety.

UK has just published inflation data for March. Inflation Rate was 1.5% year-over-year and 0% month-over-month, in line with the analyst consensus. Core Inflation Rate for March (month-over-month) came below the analyst consensus at 0.1%.

Retail Price Index came at 0.2% compared to analyst expectations of -0.2%. So far, retail prices show positive dynamics, which may be fueled by stockpiling ahead of the lockdown. It’s hard to expect continued increases in prices amid declining demand in April.

Technical Analysis

gbp usd april 22 2020

GBP/USD gained downside momentum after it breached the 20 EMA at 1.2400 and easily went through the minor support level at 1.2350. There was a possibility that the support at 1.2400 will help GBP/USD return to the upside channel but this scenario has not materialized, and the pair entered into a local downtrend.

Currently, the next material support level is located at 1.2170, at the lows of the previous downside move. In case this support is breached to the downside, the pair will head towards 1.2000.

On the upside, the previous support at 1.2400 has become the new resistance for GBP/USD. The minor level at 1.2350 did not prove its strength so it’s hard to expect material resistance in this area.

In case GBP/USD manages to get above the 20 EMA, it will return into a range between the 20 EMA at 1.2400 and the 50 EMA at 1.2470. The breach of the 50 EMA level will open the way to the previous highs at 1.2650.

 

USD/CAD Daily Forecast – U.S. Dollar Is Boosted By Global Risk-Off Sentiment

USD/CAD Video 21.04.20.

Historic Sell-Off In Oil Puts Additional Pressure On The Canadian Dollar

USD/CAD tested resistance at 1.4250 as the U.S. dollar got a boost from the downside move in the equity markets while the Canadian dollar found itself under pressure due to falling oil prices.

The May 2020 contract for WTI oil visited the negative territory yesterday, and the June 2020 contract is also under heavy pressure today. Canadian oil trades at a discount to WTI oil so its market situation is very challenging.

The U.S. dollar is gaining ground against a broad basked of currencies, and the U.S. Dollar Index has settled above the 100 level. However, the upside move is not as big as it could have been given the sea of red in the global markets.

At this point, the U.S. dollar continues to serve as the safe haven asset of last resort which benefits from turmoil. However, it is possible that the worsening economic situation in the U.S. will ultimately put some pressure on the American currency.

For now, the main driver of the current USD/CAD upside is the downside move on the oil price front – all oil-related currencies are under pressure today. There’s a major panic in the oil market right now and it’s hard to tell when the selling stops, so USD/CAD may gain even more ground in the upcoming trading sessions if oil continues to trend down.

Technical Analysis

usd cad april 21 2020

USD/CAD is currently trading below the major resistance level at 1.4250. This level has been tested several times during the previous upside move in USD/CAD and proved its strength.

In case USD/CAD manages to settle above 1.4250, it will likely gain additional upside momentum and head towards the next resistance at 1.4330. This resistance level has been visited during the previous upside move but USD/CAD qucikly fell back below 1.4250.

This time, the pair will likely have more chances to get through 1.4330 in case oil prices stay at very low levels. In this scenario, USD/CAD may even head towards the next resistance level at 1.4500.

On the support side, the nearest support level is located at the 20 EMA at 1.4055 followed by the next support level at the 50 EMA at 1.3910.

 

Oil Plunges Again Following Historic Downside Move On Monday

Oil Video 21.04.20.

Unprecedented Downside Move Deals Damage To Investor Confidence

WTI June 2020 contract is down about 25% today after May 2020 contract went deep into the negative territory on Monday as traders tried to avoid taking delivery of oil in May.

This unprecedented move put heavy pressure on oil market sentiment so contracts for other months are also losing ground. For example, the December 2020 contract trades just above $30, which signals that oil traders expect that low oil prices will stay for the full 2020.

While the negative prices for May 2020 contract could be viewed as a historic curiosity, they have certainly dealt real damage to investor sentiment. Also, the market price action on Monday highlighted the real problem of the oil market – some parts of the world may run out of storage in May.

Interestingly, the U.S. is not the only major producer which faces the storage problem. Russia also lacks oil storage space and faces difficulties due to the unprecedented decline of demand for its oil. Not surprisingly, the thinly-traded Urals futures also went below zero on Monday.

At this point, the range of demand estimates is so big that it is clear that no one knows how much damage to oil demand was dealt by the coronavirus crisis. This uncertainty leads to additional downside in the oil market since traders start evaluating the scenario in which the whole world runs out of oil storage.

Is Any Help Coming?

While the recent OPEC+ oil production cut deal is a sign of producers’ readiness to engage in coordinated action to improve the supply/demand balance, it looks like the current situation may lead to additional friction between major players.

For example, the U.S. considers an option to stop Saudi Arabian oil vessels from offloading oil in order to support the local oil industry. In case such restrictions are implemented, the oil glut will worsen since uneconomic production will be artificially kept afloat and won’t leave the market.

Meanwhile, major oil producers understand the severity of the current crisis and are ready to start implementing production cuts before the official start of the deal on May 1.

However, it remains to be seen whether the production cuts will be in time to provide support for the battered oil market and ease the situation on the oil storage front.

Silver Price Daily Forecast – Silver Falls Due To Broad Market Sell-Off

Silver Video 21.04.20.

Unprecedented Downside In The Oil Market Puts Pressure On Many Asset Classes

Silver breached the 20 EMA level near $15.00 and fell to the next support at $14.60 amid a broad sell-off in the world markets.

This sell-off was triggered by the historic sell-off in the oil market – WTI contract for May 2020 fell below zero on Monday. The trading has shifted to the June 2020 contract but the sell-off continues.

In this situation, all riskier assets found themselves under pressure while demand for safe haven assets increased. The primary beneficiaries of the sell-off are the U.S. dollar and the U.S. Treasuries which serve as primary safe haven assets during the current crisis.

Precious metals have not enjoyed this status during the coronavirus pandemic, although gold benefited from huge monetary stimulus announced by governments and central banks.

However, at times of a broad sell-off, gold also finds itself under pressure. In this environment, it is not surprising that silver is also losing ground.

In addition to the sell-off in the equity markets, the strength of the U.S. dollar puts more pressure on precious metals as it makes them more expensive for buyers who have other currencies.

The U.S. Dollar Index has firmly settled above the psychologically important 100 level and continues its upside move. Recently, forex volatility decreased, but unprecedented moves on the oil price front can bring more volatility to the world markets.

Technical Analysis

silver april 21 2020

Silver prices breached the 20 EMA at $15.00 to the downside and left the $15.00 – $15.60 trading range. The 20 EMA level was an important support level for silver so it’s not surprising that silver has developed material downside momentum once it was able to settle below $15.00.

Currently, silver is trading at another material support level at $14.60. Previously, this level has served as resistance for silver on its way up, and there was a lot of interest in this area.

In case silver is able to settle below $14.60, it will likely gain additional downside momentum and head towards the next support area at $13.80- $14.00.

The nearest resistance level for silver is currently located at the 20 EMA at $15.00. If silver is able to return above the 20 EMA, it will again trade in the range between the 20 EMA and the 50 EMA before being able to make the next move.

U.S. Stocks Set To Open Lower As Oil Prices Fall Again

Oil Price Downside Continues Following The Historic Move On Monday

WTI May 2020 contract has made its way to history books by falling way below the zero mark. While the trading has shifted to June 2020 contract, the storage problem did not disappear, and oil is finding itself under pressure once again.

Currently, the June 2020 WTI oil contract is down more than 20% in one day. Not surprisingly, the collapse on the oil price front negatively impacts the U.S. equity market.

S&P 500 futures are losing about 2% in premarket trading and are set to continue yesterday’s downside move. It remains to be seen whether the panic in the oil market will continue but it is guaranteed to put pressure on oil-related equities.

Waiting For Existing Home Sales Data

In addition to oil price dynamics, traders and investors will have a chance to evaluate Existing Home Sales for March. Analyst expect that Existing Home Sales contracted by 8.1% due to virus containment measures.

In all likelihood, the data for April will look much worse since people were not able to visit homes on sale due to lockdown measures. It remains to be seen whether the market will react negatively to the Existing Home Sales report since it looks like it is still focused on the positive impact of monetary stimulus measures.

Will Big Tech Support The Market?

The big tech companies have fared much better than S&P 500 during the current crisis. Amazon is trading near all-time highs and its shares up up roughly 30% year-to-date. Netflix is also close to all-time highs, up 35% year-to-date.

Other major tech companies have also done well during the rebound from March lows. At this point, they are leading the market, and any signs of weakness at big tech may signal that the current phase of the market rebound is over.

This tech rally will soon get tested by earnings reports since Netflix will report its results on April 21, after the market close. Judging by the recent price action in Netflix shares, the market’s expectations are high.

Netflix report will set the market mood ahead of other big tech reports which are expected to be released during the next week, so it’s certainly a report to keep an eye on.

GBP/USD Daily Forecast – U.S. Dollar Gains Ground On Increased Demand For Safe Haven Assets

GBP/USD Video 21.04.20.

Yesterday’s Historic WTI Oil Move Hurts Global Markets And Helps The U.S. Dollar

GBP/USD continues to pull back amid rush for safety provoked by a historic downside move in WTI May contract which went deep into the negative territory yesterday.

The U.S. dollar is gaining ground against a broad basket of currencies, and the U.S. Dollar Index has firmly settled above the 100 level.

I’d note that volatility has decreased significantly over the last few weeks, and currency moves have become more measured. This means that central banks’ efforts to ensure liquidity in different currencies are positively impacting the markets.

UK has just released the Claimant Count Change for March, which measures the change in the number of claimants for unemployment benefits. The report showed that 12,200 people filed for unemployment benefits, which is much smaller than the consensus estimate of 175,000.

It’s too early to tell what impacted the data, but it is clear that unemployment should have increased much bigger in March due to virus containment measures.

Near-term dynamics of GBP/USD will depend on the general demand for safe haven assets which significantly impacts the position of the U.S. dollar against a broad basket of currencies.

As I noted above, volatility is declining, but another portion of bad data may change this picture. On Thursday, April 23, the U.S. will release the weekly Initial Jobless Claims which are expected to show that 4 million of Americans filed for unemployment benefits, putting the total number of people who lost their jobs in the U.S. above 26 million.

Previously, the markets were able to shrug off the bad U.S. employment data, but it may become harder to do as the crisis unfolds.

Technical Analysis

gbp usd april 21 2020

GBP/USD tries to break out of the range between the 20 EMA at 1.2420 and the 50 EMA at 1.2480. In case the pair manages to settle below the 20 EMA, it will head towards the next support level at 1.2350.

On the way up, the nearest resistance is located at the 50 EMA at 1.2480. If GBP/USD breaks through this resistance level, it will have a good chance to test the recent highs at 1.2650.

However, GBP/USD will first have to deal with a minor resistance level at 1.2525 which has already been tested several times.

U.S. Stocks To Watch This Week

How Much Damage Was Done To Airlines?

Delta Air Lines will report its earnings on April 22, 2020 before the market open. The airlines got hit especially hard during the current coronavirus crisis since international travel was mostly halted around the world while domestic travel took a huge hit.

In this environment, it is especially interesting to hear what airlines have to say about their perspectives. Early indications paint a bleak picture: United Airlines stated that its revenue fell 17% in the first-quarter. The company expects to cut capacity by 90% in May and believes that similar cuts will be implemented in June 2020.

Airline stocks have suffered materially during the current crisis but they still have plenty of market capitalization. Any indication of increased financial problems may lead to a material downside move across the whole sector.

Chipotle Mexican Grill Upside Will Get Tested

At the low point of the previous downside move, shares of Chipotle Mexican Grill traded as low as $415. After this, the shares had a mighty rebound and are currently trading above $800.

Chipotle Mexican Grill will report its results on Tuesday, April 21, after the market close. Analysts expect that the company’s earnings will reach $2.66 per share in the first quarter, dip to $0.25 per share in the second quarter and then rebound to $3.05 per share in the third quarter.

These aggressive earnings estimates, which imply that the impact of the current coronavirus will be limited to the second quarter, are the reason behind Chipotle’s mighty comeback.

In case the earnings report and the subsequent earnings call paint a bullish picture for the earnings recovery, the company’s shares may have even more upside.

Will Nefflix Continue Its Upside Move?

Shares of Netflix proved to be a safe haven asset during the current crisis and are currently trading near all-time highs. Investors and traders are optimistic about the company’s perspectives as they expect a boost to the company’s subscriber base as people are forced to stay at home.

The company’s share price performance will get tested on Tuesday, April 21, when it will report its results after the market close. Analyst consensus calls for earnings of $1.64 per share and does not anticipate any material decrease in performance in the second quarter.

The magnitude of the recent upside move sets the bar high – any weakness in the report may cause a sell-off.

Oil Crashes Ahead Of May Contract Expiry

Oil Video 20.04.20.

Nobody Needs Oil In May

I have previously written about the major spread between oil contracts for May 2020 and June 2020. Today, this spread has increased to absurd levels – contracts for May 2020 traded as low as $11 per barrel, while the low point for June 2020 contracts was above $21.50.

The problem is that nobody wants to take delivery of oil in May. Currently, oil production is unrestricted (the new OPEC+ production cut deal begins in May), while oil demand is experiencing an unprecedented hit.

In this environment, oil storage facilities continue to fill up, and the storage situation in May is set to be very tense.

Currently, the market expects that the new oil production cut deal will improve the supply/demand balance, so the June 2020 contract is trading at levels that are more than $10 higher compared to the May 2020 contract.

Looking at other contracts, traders are expecting that the situation will gradually improve once the OPEC+ deal is implemented and non-OPEC countries cut their oil production as well.

The July 2020 contract is trading above $27, while the December 2020 contract is above $33. Still, there’s so much uncertainty and volatility that it’s hard to take these contracts as indication of what will happen in the future.

Oil May Be Pricing In Slow Recovery Of Activity After The End Of Virus Containment Measures

The OPEC+ deal is impacting the supply part of the oil market balance, but the demand side is also fluid. The recovery in oil demand will depend on the speed at which the world economies will get back to normal life (or some variation of a “new normal”).

Early indications are not too optimistic. All hard-hit countries will likely have to implement a phased approach of the reopening of their economies to avoid the second wave of pandemic.

In addition, consumers will get hit by virus fears and employment uncertainty, which may put additional pressure on economic activity. Currently, it is very hard to forecast the exact impact of the coronavirus pandemic on oil demand in 2020 – potentially, it’s a futile exercise given the number of variables so oil producers will likely have to adjust to the changing landscape on the fly.

Continued uncertainty is no friend of oil prices in the current environment, and that’s why we see June 2020 contract race towards $20 per barrel.

Silver Price Daily Forecast – Silver Holds Well Despite Sell-Off In Many Markets

Silver Video 20.04.20.

Silver Shows No Signs Of Weakness In A Challenging Day For Global Markets

Silver remained in a range between the 20 EMA near $15.00 and the 50 EMA at $15.60 while global markets turned red amid rapid downside move in crude oil prices.

Currently, the precious metal segment is ignoring the broader sell-off which is a good sign for silver and gold bulls. Both silver and gold are gaining ground despite the risk-off mode in the global markets.

The U.S. Dollar Index, which measures the strength of the American currency against a broad basket of currencies, is also little changed and continues to settle near the 100 level.

The absence of additional pressure from the U.S. dollar is positive for silver. The U.S. dollar is serving as a safe haven asset of last resort during the current crisis, and its strength makes silver more expensive for buyers who have other currencies.

It remains to be seen whether silver will also act as a safe haven asset in case today’s sell-off turns into something bigger. There’s plenty of economic data to digest this week, starting from U.S. Existing Home Sales which are set to be published on Tuesday, April 21, so the markets will likely be volatile.

Previously, general market weakness pushed silver lower since industrial demand is an important component of demand for silver. However, investment demand at times of unprecedented monetary stimulus may help silver hang on to current levels even if financial markets experience another downside move.

Technical Analysis

Silver Daily Chart

Silver received support near the 20 EMA and rebounds from $15.00. The 50 EMA level at $15.60 is the first resistance level for silver. In case silver manages to settle above this level, it will likely gain additional upside momentum and head towards pre-crisis levels at $16.50.

I’d expect some minor resistance near recent highs at $15.80, but I don’t think that this level will present a major problem in case silver gets above the 50 EMA.

On the support side, the breach of the 20 EMA level will take silver to $14.60, which was the previous resistance level and has become the new support level. There was a lot of interest in this area so I’d expect a major battle between bulls and bears in case silver reaches $14.60.

U.S. Stocks Set To Open Lower As Crude Oil Gets Crushed

May Contract For WTI Oil Falls To Levels Last Seen In 1999

S&P 500 futures are losing about 2% in premarket trading as oil gets crushed and market attention shifts to the potential speed of the post-lockdown recovery.

May contract for WTI oil, whose settlement date is April 21, 2020, fell below $12 per barrel, a level not seen since 1999. The June contract is doing better but also showed material decline and is currently trading below the $23 level.

The major downside in oil will surely put pressure on oil-related stocks, including major oil producers like Exxon Mobil, Chevron, BP and Total or oil services firms like Schlumberger, Halliburton and Baker Hughes.

The problems on the oil price front will hurt the U.S. economy, both through direct impact on oil companies and indirect impact on everyone who provides its services to oil producers and their employees.

The Magnitude Of Economic Damage From Virus Containment Measures Remains Unclear

As per the recent economic outlook update from the International Monetary Fund, the U.S. Economy is expected to shrink by 5.9% in 2020. However, the actual results are uncertain, and a recent example from Spain highlights this uncertainty.

The IMF predicted that GDP of Spain will decline by 8.0% in 2020. Meanwhile, the Bank of Spain stated that GDP may decline between 6.8% and 12.0%, with a midpoint at -9.4%.

Both the range and the difference between the midpoint of Bank of Spain forecast and the IMF forecast highlight the enormous uncertainty that has to be dealt with in these unprecedented times.

It remains to be seen if this uncertainty will put more pressure on the market after the recent rally or if additional stimulus measures will help traders ignore the negative economic data.

U.S. Set To Approve Additional Aid For Small Businesses

The U.S. President Donald Trump signaled that additional aid for small firms that got hit by the coronavirus crisis may be approved this Monday. It is unclear how much money will be allocated, but any help is surely welcome as the lockdown puts huge pressure on small companies.

The size of the intervention is unlikely to move financial markets who got accumstomed to huge stimulus programs. Most likely, traders and investors will focus on oil price dynamics on Monday and then shift their attention to new economic data like Existing Home Sales which is set to be published on Tuesday.

GBP/USD Daily Forecast – U.S. Dollar Gains Ground Amid Demand For Safe Haven Assets

GBP/USD Video 20.04.20.

Attention Shifts Back To Coronavirus Data

GBP/USD started to pull back from recent levels as traders put purchases of riskier assets on pause. The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, was located near the psychologically important 100 level.

There’s no major economic data scheduled to be released today. The U.S. will report Chicago Fed National Activity Index for March, while the UK has no economic releases in the calendar.

In this situation, attention shifts back to healthcare data and forecasts regarding the timing of the end of lockdown measures.

According to data from Johns Hopkins University, the U.S. has accumulated 759,687 coronavirus cases, while the UK has 121,173 cases.

The UK Cabinet Office minister Michael Gove stated that it was too early to talk about lifting restrictions. In the U.S., President Donald Trump continued his effots to find a path to reopen the economy but faced resistance from governors of hardest-hit states.

Meanwhile, the U.S. is set to deliver another coronavirus aid package for the country’s small businesses which got hit especially hard during the coronavirus pandemic.

Banking on healthy demand for the U.S. Treasuries and the U.S. dollar, the U.S. continues to throw additional money at the problem. Both the American government debt and the American currency continue to serve as safe haven assets of last resort despite the grim economic data which was published in the U.S. in recent weeks.

Technical Analysis

gbp usd april 20 2020

GBP/USD continues to trade between the 20 EMA at 1.2425 and the 50 EMA at 1.2490. The 20 EMA serves as the nearest support level for the pair while the 50 EMA is the nearest resistance level.

In case GBP/USD breaches the 20 EMA level to the downside, it will head towards the next support level at 1.2350. The ultimate goal of such downside move is the major support level at 1.2170.

On the upside, GBP/USD will have to breach the 50 EMA level to get a chance to test the recent highs at 1.2650. If such a test is successful, the pair will gain additional upside momentum and head towards pre-crisis levels at 1.2750, completing the current rebound.

USD/CAD Daily Forecast – U.S. Dollar Declines On Broad Market Optimism

USD/CAD Video 17.04.20.

Canadian Dollar Gains Ground On Low-Data Day

The U.S. dollar weakened against the Canadian dollar as the market expressed optimism about the three-stage plan to reopen the U.S. economy.

Another good news was that Gilead’s drug remdesivir showed promising results in treating coronavirus patients, although the sample of such patients was small. Together, these news boosted riskier assets and put pressure on safe haven assets like the U.S. dollar.

The U.S. Dollar Index, which measures the U.S. dollar strength against a broad basket of currencies, settled below 100 as traders favored riskier currencies.

The economic calendar was light today, and there were no notable reports. The next Monday will also be light on the economic data side. Canada will report Wholesale Sales for February, which are of limited interest because the real hit to the economy happened in March.

In the U.S., Chicago Fed National Activity Index will be released. Both reports are unlikely to have a major impact on the trading action in USD/CAD.

Instead, traders will likely focus on whether risk appetite will continue to increase, putting additional pressure on the U.S. dollar. Also, oil price dynamics may have a material impact as WTI oil traders switch from May 2020 contract to June 2020 contract.

The Canadian oil is priced at a significant discount to WTI oil, and additional downside in WTI oil can put major pressure on the Canadian currency.

Technical Analysis

usd cad april 17 2020

USD/CAD continues to pull back following the rapid upside move that happened several days ago, when the market was worried about poor U.S. economic data and safe haven assets like the U.S. dollar got a boost.

Currently, the pair is trading near the 20 EMA level at 1.4030 which serves as the first material support level for USD/CAD. In case this level is breached to the downside, the pair will head towards the next support level at the 50 EMA at 1.3880.

On the upside, the nearest major resistance level is located at 1.4250. However, I’d note that the recent highs below 1.4200 may also be an obstacle on USD/CAD way to the upside.

Currently, it looks like the previous one-day upside move did not change the local trend for USD/CAD, and the pair continues to go down in a broad downside channel.