British Pound Is Flat Against U.S. Dollar After Yesterday’s Volatile Trading Session
GBP/USD failed to settle above the resistance at 1.3000 and returned to the 50 EMA level at 1.2945 as traders reacted to news on Brexit negotiations.
GBP/USD got a boost after British minister Michael Gove stated that European Union’s Michel Barnier agreed to intensify negotiations. Later, Britain’s negotiator David Frost signaled that the country would not continue talks until EU offers consessions. This statement put material pressure on GBP/USD and pushed it back below 1.3000.
Most likely, GBP/USD will remain highly sensitive to Brexit news in the upcoming trading sessions.
In addition to Brexit talks, GBP/USD traders will focus on UK inflation data which will be published on Wednesday. Inflation Rate is expected to increase by 0.5% year-over-year in September while Core Inflation Rate is projected to grow by 1.3%.
Currently, Britain is fighting against the second wave of coronavirus, and it is interesting to see whether problems on the virus front put pressure on prices. Previously, Bank of England stated that it did not rule out an adoption of negative interest rate policy.
Just like other major central banks, Bank of England is trying to bring inflation to the 2% mark. If the inflation reports are weaker than expected, the odds of negative rates will increase.
GBP/USD continues its attempts to settle above the 50 EMA at 1.2945. In case GBP/USD manages to stay above the 50 EMA, it will have a chance to develop additional upside momentum and get to the test of the highs of the previous trading session near 1.3030.
I’d note that GBP/USD has mostly ignored the resistance at 1.3000 in recent sessions but there’s a chance that it may still face some resistance at this level on the way up.
In case GBP/USD moves above the resistance at 1.3030, it will head towards October highs near 1.3070.
On the support side, the nearest support level for GBP/USD is located at 1.2890. If GBP/USD gets below this level, it will gain downside momentum and decline towards the next support at 1.2815.
ConocoPhillips, an independent oil and gas exploration company, said it will acquire the U.S. shale oil producer Concho Resources in an all-stock transaction valued at $9.7 billion.
Under the terms of the deal, each share of Concho Resources common stock will be exchanged for a fixed ratio of 1.46 shares of ConocoPhillips common stock, representing a 15% premium to closing share prices on October 13, the company said.
“The 15% premium for the acquiree compares favourably with recent transactions, such as Devon’s merger with WPX, but is modest by historical standards. Until recently, we would have considered a premium of 20%-30% to be the norm for an exploration and production company takeover,” said Dave Meats, director at Morningstar.
“But the environment for E&Ps has deteriorated recently, following the pandemic-related collapse in crude prices. And for Concho specifically, the upcoming presidential election could be more of a threat than it is for most shale companies because Concho has much more exposure to federal land than its peers do,” Meats added.
The transaction is expected to close in the first quarter of 2021.
ConocoPhillips shares ended 3.16% lower at $32.7 on Monday; the stock is down about 50% so far this year. Concho Resources shares closed 2.75% lower at $47.26 on Monday; the stock is down about 46% so far this year
ConocoPhillips stock forecast
Twelve analysts forecast the average price in 12 months at $47.91 with a high forecast of $56.00 and a low forecast of $37.00. The average price target represents a 46.51% increase from the last price of $32.70. From those 12 equity analysts, 11 rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.
Morgan Stanley gave a base target price of $47 with a high of $69 under a bull scenario and $23 under the worst-case scenario. Citigroup raised their stock price forecast to $39 from $37 and Truist Securities upped their price objective to $55 from $52.
Several other analysts have also recently commented on the stock. ConocoPhillips had its target price decreased by stock analysts at Bank of America to $46 from $50. The brokerage currently has a “neutral” rating on the energy producer’s stock. KeyCorp started coverage on ConocoPhillips, issuing an “overweight” rating and a $46.00 price objective for the company. At last, Raymond James raised their target price to $48 from $46 and gave the company an “outperform” rating.
Concho Resources stock forecast
Twelve analysts forecast the average price in 12 months at $67.73 with a high forecast of $79.00 and a low forecast of $55.00. The average price target represents a 43.31% increase from the last price of $47.26. From those 12 equity analysts, 11 rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.
Morgan Stanley gave a base target price of $64 with a high of $81 under a bull scenario and $22 under the worst-case scenario. Citigroup lowered their stock price forecast to $67 from $72 and JP Morgan establishes December 2021 price target of $68 vs December 2020 price target of $65.
Several other analysts have also recently commented on the stock. Concho Resources had its target price dropped by Bank of America to $65 from $70. The firm presently has a “buy” rating on the oil and natural gas company’s stock. Mizuho downgraded Concho Resources from a “buy” rating to a “neutral” rating and boosted their price target for the company from $68 to $69.
“ConocoPhillips’ (COP) announced the acquisition of Concho Resources (CXO) fortifies the company’s leadership position within US energy. Pro-forma, a diverse portfolio of low-cost resource + ESG focus differentiates COP in lower growth, returns focused shale ‘era.’,” said Devin McDermott, equity and commodities Strategist at Morgan Stanley.
“ConocoPhillips checks all the boxes for sustained outperformance: excellent management, disciplined investment, and consistent return of cash coupled with high quality, low-cost portfolio that can deliver an attractive combination of FCF and growth.”
“Attractive value proposition even in the current commodity price environment with leverage to any rally in oil and with resiliency should price remain low. Strong balance sheet. While management received some investor pushback in 2019 for building an $8 billion strategic cash balance, that disciplined strategy is paying off in 2020 – creating financial and strategic flexibility,” McDermott added.
Upside and Downside Risks to ConocoPhillips
Upside: 1) Higher commodity prices. 2) Upside to Alaska resource discovery. 3) Better well performance in Lower 48 – highlighted by Morgan Stanley.
Downside: 1) Lower commodity prices. 2) Cost inflation. 3) Alaska discovery has less potential resources than expected. 4) Federal acreage exposure in Alaska. 5) Worse than expected well results in the Eagle Ford, Permian, and Bakken.
Upside and Downside Risks to Concho Resources
Upside: 1) Reduced operating and development costs. 2) Consistent execution. 3) Non-core divestitures, with cash returned to shareholders – highlighted by Morgan Stanley.
Downside: 1) Downside to Permian natural gas price differentials. 2) Elevated non-operated spending. 3) Regulation preventing development on Federal acreage.
December E-mini Dow Jones Industrial Average futures are inching higher early Tuesday after posting a steep decline the previous session. The move represents disappointment in Washington lawmakers’ inability to reach an agreement on coronavirus stimulus ahead of a Tuesday deadline that would make a relief package possible ahead of the November 3 elections.
Pelosi and Treasury secretary Steven Mnuchin “continued to narrow their differences” in conversations on Monday and Pelosi was hopeful that by the end of Tuesday there will be “clarity” on whether coronavirus stimulus is possible before November 3 election, according to a spokesperson for Pelosi.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. A trade through 28846 will signal a resumption of the uptrend. The main trend will change to down on a move through 26407. This is highly unlikely but there is room for a normal 50% to 61.8% retracement of its current short-term rally.
The minor trend is also up. A trade through 28025 will change the minor trend to down. This will also shift momentum to the downside.
The new minor range is 28846 to 28025. Its 50% level or pivot at 28436 is potential resistance.
The intermediate range is 29050 to 26407. Its retracement zone at 28040 to 27729 is the next potential target zone. This area is actually controlling the near-term direction of the Dow.
The short-term range is 26407 to 28846. Its retracement zone at 27627 to 27339 is another potential downside target and possible support zone.
Based on Monday’s price action, the direction of the December E-mini Dow Jones Industrial Average futures contract on Tuesday is likely to be determined by trader reaction to the Fibonacci level at 28040.
A sustained move over 28040 will indicate the presence of buyers. This could create the upside momentum needed to challenge the minor pivot at 28436. This level is a potential trigger point for an acceleration into 28732 to 28846.
A sustained move under 28040 will signal the presence of sellers. This should lead to a quick test of the minor bottom at 28025. This price is a potential trigger point for an acceleration into a pair of 50% levels at 27729 and 27627.
Since the main trend is up, buyers could come in on a test of 27729 – 27627. If the latter fails as support then look for the selling to possibly extend into 27339.
It’s was a relatively quiet start to the day on the economic calendar this morning. The Kiwi Dollar and Aussie Dollar were in action early on, with the PBoC also in the spotlight.
Away from the economic calendar, the markets also responded to the lack of progress on Capitol Hill.
For the Kiwi Dollar
In the 3rd quarter, the NZIER Business Confidence
According to the NZIER Quarterly Survey of Business Opinion,
A net 40% of firms expect business conditions to deteriorate in the 3rd quarter, compared with 63% in the previous quarter.
The building sector was the most confident, with a net 7% of firms expecting an improvement in the economy near-term.
Other sectors were more cautious. While manufacturers were less pessimistic, the service sector was the most pessimistic. A net 49% of services firms expect a worsening in general economic conditions in the coming months.
Uncertainty continues to plague the services sector after the adverse effects of lockdown and border restrictions.
The Kiwi Dollar moved from $0.66047 to $0.66027 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.30% to $0.6586.
For the Aussie Dollar
The RBA monetary policy meeting minutes drew interest early this morning.
Members observed that the global economy was recovering but that most economies were still some way off pre-pandemic output levels.
The continuation of the recovery was dependent upon the containment of the virus.
China’s economic recovery was the most advanced, while globally, inflation remained very low and below central bank targets.
While Australia saw its largest economic contraction since the 1930s, members noted that the decline in output had been smaller than expected.
Labour market conditions had improved, with the unemployment rate likely to peak at a lower rate than previously expected.
The RBA expects both unemployment and underemployment to remain high for an extended period of time.
Members considered that the economy would need fiscal and monetary support for some time.
Members also noted that the effects of monetary policy easing had been impaired as a result of restrictions on activity in parts of the economy.
As the economy opens up, however, members considered it reasonable to expect further monetary policy easing to gain more traction.
The Board also considered the nature of the forward guidance regarding the cash rate. Given the higher level of uncertainty about inflation dynamics, the Board agreed to place more weight on actual, not forecast, inflation for its decision-making.
Members also indicated that they would like to see more than just progress towards full employment before considering an increase in the cash rate.
The Aussie Dollar moved from $0.70559 to $0.70582 upon release of the minutes. At the time of writing, the Aussie Dollar was down by 0.44% to $0.7043.
Out of China
The markets are expecting that the PBoC will leave Loan Prime Rates unchanged this morning. Currently, the 1-year LPR sits at 3.85%, with the 5-year at 4.65%.
At the time of writing, the Japanese Yen was down by 0.10% ¥105.54 against the U.S Dollar.
The Day Ahead:
For the EUR
It’s a quiet day ahead on the economic calendar. Wholesale inflation figures for September are due out of Germany.
We don’t expect too much influence on the EUR, however, with COVID-19 numbers and any Brexit chatter in focus.
At the time of writing, the EUR was up by 0.02% to $1.1771.
For the Pound
It’s a particularly quiet day ahead on the economic calendar. There are no material stats due out to provide the Pound with direction.
The lack of stats will leave any further chatter on Brexit and updates on COVID-19 in focus.
While Downing Street announced an end to negotiations, the markets are expecting talks to resume. Boris Johnson left the door open for further talks, though it remains to be seen whether the EU will compromise…
At the time of writing, the Pound was flat at $1.2948.
Across the Pond
It’s a relatively quiet day ahead for the U.S Dollar.
September building permits and housing starts are due out later this afternoon.
Barring particularly dire numbers, we would expect the markets to brush aside the numbers.
The focus will be on the U.S Presidential Election polls, the Senate polls, and chatter from Capitol Hill.
Expect updates on COVID-19 to also influence on the day.
It was a bearish start to the week for the European majors on Monday. The DAX30 fell by 0.42%, with the CAC40 and EuroStoxx600 seeing losses of 0.13% and 0.18% respectively.
A lack of economic data from the Eurozone left Brexit, COVID-19, and updates from Capitol Hill in focus on the day.
While hopes of a COVID-19 Stimulus package had provided early support, concerns over COVID-19 and Brexit weighed.
A reintroduction of lockdown measures in Europe raised concerns over the economic outlook, as did Brexit.
Following the British PM’s decision to end negotiations, the EU had yet to deliver a meaningful compromise in response to Johnson’s announcement. Downing Street had left the door ajar for further talks but not if the EU’s stance remained unchanged.
It was a particularly quiet day on the Eurozone economic calendar. There were no material stats from the Eurozone to provide the majors with direction on Monday.
Ahead of the European open, economic data from China had provided the European majors some support going into the open.
The stats from China reflected the continued economic recovery from the COVID-19 shutdown, though GDP numbers fell short of forecasts.
From the U.S
It was also a particularly quiet day on the economic calendar, with no stats from the U.S to influence.
The Market Movers
For the DAX: It was a mixed day for the auto sector on Monday. Continental bucked the trend, rising by 0.48%, while Daimler slid by 2.32% to lead the way down. BMW and Volkswagen saw modest losses of 0.03% and 0.06% respectively.
It was a bullish day for the banks, however. Deutsche Bank rose by 0.38%, with Commerzbank rallying by 1.99%
From the CAC, it was a bullish day for the banks. BNP Paribas and Credit Agricole rose by 1.23% and by 0.60% respectively. Soc Gen led the way once more, however, with a 1.96% gain.
It was a mixed day for the French auto sector, with Peugeot rising by 0.16%, while Renault slipped by 0.25%.
Air France-KLM rallied by 7.36%, with Airbus SE gaining by 2.14%.
On the VIX Index
It was a 6th consecutive day in the green for the VIX. Following a 1.63% gain on Friday, the VIX rose by 6.46% on Monday to end the day at 29.18.
Hopes of a stimulus deal, following chatter from the weekend, faded on the day, sending the U.S majors into the red.
The Dow and S&P500 fell by 1.44% and by 1.65% respectively, with the NASDAQ ending the day down by 1.65%.
The Day Ahead
It’s a relatively quiet day on the Eurozone economic calendar. German wholesale inflation figures for September are due out going into the European open.
The numbers are unlikely to influence, however, with COVID-19, geopolitics, and PBoC monetary policy in focus.
From the U.S, economic data is limited to housing sector figures for September. We would expect the markets to brush aside the numbers, with all eyes on Capitol Hill.
Democrat Nancy Pelosi had set a Tuesday deadline to reach a stimulus agreement before the Presidential Election. Negative sentiment towards the chances of a stimulus package weighed on the U.S majors on Monday. We can expect the European majors to come under pressure early on.
Ahead of the European, the PBoC is in action. The markets are expecting the PBoC to leave loan prime rates unchanged. Economic data from Monday supported a hold on monetary policy.
In the futures markets, at the time of writing, the Dow was up by 158 points, while the DAX was down by 33.5 points.
December E-mini NASDAQ-100 Index futures are trading sharply lower shortly before the close on Monday as traders express doubts that government policymakers will be able to agree on a new fiscal stimulus package that is needed to help keep the economy on the road to recovery.
In other news, according to Reuters, Netflix Inc will tell investors on Tuesday how the ongoing COVID-19 pandemic affected membership in the third quarter – a period when analysts remain bullish on the company despite the return of live sports and more streaming competition. The video-streaming service was up around 1% ahead of its results on Tuesday.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart, however, momentum is trending lower. A trade through 12249.00 will signal a resumption of the uptrend. The main trend officially turns down on a move through the last swing bottom at 11197.50.
The minor trend is down. This shifted momentum to the downside. The minor trend changed to down when sellers took out 11736.50.
The intermediate range is 12444.75 to 10656.50. Its retracement zone at 11761.75 to 11550.50 is currently being tested. Trader reaction to this zone will likely determine the near-term direction of the index.
The short-term range is 10656.50 to 12249.00. Its retracement zone at 11452.75 to 11264.75 is the next downside target.
Since the main trend is up, all retracement zones are potential support areas until the trend changes to down. The price action also suggests that investors may not be willing to chase the market higher, but instead may be looking for a value area.
We’re going to be watching trader reaction to 11761.75 early Tuesday since this is likely to set the tone for the session. Over the short-run, however, it’s probably best to watch 11761.75 and 11550.50.
Buyers may try to form a support base inside 11761.75 to 11550.50.
We are also confident that a break down under 11550.50 will not mean a major break is coming. Buyers are still likely to come in at 11452.75 to 11264.75.
We’re also pretty confident that new fiscal stimulus is coming, but we don’t know when, or even the size of the deal. In the meantime, investors may continue to probe the downside, looking for a value area. Basically, I still like the upside potential of this market, except I only want to buy at my price. I think chasing a rally is dangerous at this time and at current price levels.
December E-mini S&P 500 Index futures are trading lower late Monday as investors worried that they might not see a coronavirus economic stimulus deal before the November 3 presidential election. While House Speaker Nancy Pelosi said Sunday that she was optimistic legislation could be pushed through before the election, but that an agreement would have to come by Tuesday for that to happen.
A spokesperson told Fox on Monday that the White House was “cautiously optimistic” that Pelosi was moving toward making a deal.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart, but momentum is trending lower. A trade through 3541.00 will signal a resumption of the uptrend. The main trend changes to down on a trade through 3198.00. This is highly unlikely but there is room for a normal 50% to 61.8% correction of the current rally.
The minor trend is down. This accounts for the shift in momentum. The minor trend changed to down when sellers took out the last swing bottom at 3431.50. The new minor swing top is 3508.50.
The short-term range is 3576.25 to 3198.00. The index is currently testing its retracement zone at 3431.75 to 3387.00. This area is controlling the near-term direction of the index.
The second minor range is 3198.00 to 3541.00. Its retracement zone at 3369.50 to 3329.00 is the second potential downside target.
Based on Monday’s price action, the direction of the market the next session will likely be determined by trader reaction to the short-term Fibonacci level at 3431.75. The near-term direction, however, will likely be determined by trader reaction to the 3431.75 to 3387.00 retracement zone. We have to leave some room due to the possibility of a support base forming.
A sustained move over 3431.75 will indicate the presence of buyers. This move won’t get interesting unless buyers can overcome 3508.50.
A sustained move under 3431.75 will signal the presence of sellers. This could lead to a labored break due to a series of retracement levels, but not necessarily a change in trend to down. The potential support levels include 3387.00, 3369.50 and 3329.03.
US stocks moved lower on Monday as concerns that a stimulus deal would need to wait until after the November general election weighed on shares. House Speak Nancy Pelosi has given the White House a 48-hour timeline to move forward with a deal. The spread of COVID-19 has accelerated which is reducing the chance of a V-shaped recovery.
Over the past 2-weeks, the stock market has been starting higher and ending lower, which is not a good sign. All sectors in the S&P 500 index were lower, led down by communications and energy, utilities were the best performing sector in a down tape. The VIX volatility index surged higher rising 2-points and recapturing the 29% level. The US home building index released by the FAHB surged to the high level on record but the gain was not strong enough to buoy housing sector stocks on Monday.
Home Building Index Surges
Homebuilders continue to see expanding demand and are struggling to keep up with housing starts. The Homebuilder sentiment set a record high for the second month in a row, jumping to 85 in October on the NAHB/Wells Fargo Housing Market Index. September and October are the first two months the index has ever been above 80. This is a diffusion index with levels above 50 showing an expansion. The index stood at 71 in October 2019. All three components of the index either set records or matched their highest readings.
The current sales conditions rose 2 points to 90. Sales expectations in the next six months increased 3 points to 88, and buyer traffic was unchanged at 74. Builders are struggling to ramp up production, and while housing starts and building permits are rising they are not even close to meeting demand.
Natural gas prices whipsawed on Monday, making a lower low before rebounding sharply to close up on the trading session. Prices remain buoyed as the weather is expected to be much colder than normal through the plains and the mid-west while warmer than normal throughout most of the East coast of the United States. There is one disturbance moving through the Caribbean that has a 10% chance of becoming a tropical cyclone during the next 48-hours. Tropical storm Epsilon is expected to move toward the east coast of the US but is not likely to impact any natural gas infrastructure. Hedge funds added to long positions in futures and options according to the latest commitment of traders report.
Natural gas prices whipsawed and close higher on the session. Prices recaptured resistance which is now short-term support near the 50-day moving average at 2.76. Additional support is seen near the 10-day moving average at 2.72. Resistance is seen near the October highs at 2.95. The 10-day moving average is fast approaching the 50-day moving average and a crossover appears imminent. This would show that a medium-term uptrend is in place. Medium-term momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.
Hedge Funds add to Long Positions in Futures and Options
Managed money added to long positions and reduced short position in futures and options according to the latest commitment of traders report released for the date ending October 13, 2020. Managed money added 9K contracts to long position in futures and options while reducing short positions by 3K contracts. Hedge funds that are long futures and options outnumber short position in futures and options by 2.5 to one.
Gold prices continued to consolidate and attempted to move higher as the dollar declined. US yields moved higher which weighed on gold prices following a stronger than expected US Homebuilder Index. Concerns over the US general election and a surge in coronavirus cases in the UK have helped buoy the yellow metal. Gold volatility has eased and is currently trading near the lowest levels seen since the pandemic started to spread in February. Currently, gold “at the money” implied volatility is trading just shy of 21%.
Trade gold with FXTM
Gold prices edged higher trading sideways and making little headway. Prices remain above short term support is seen near the 10-day moving average at 1,902. Resistance is seen near the 50-day moving average at 1,924. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal on the upper end of the neutral range. Medium-term momentum remains neutral as the MACD histogram prints in the black with an upward sloping trajectory that points to a slow trend higher.
Home Building Index Surges
Homebuilders continue to see expanding demand and are struggling to keep up with housing starts. The Homebuilder sentiment set a record high for the second month in a row, jumping to 85 in October on the NAHB/Wells Fargo Housing Market Index. September and October are the first two months the index has ever been above 80. This is a diffusion index with levels above 50 showing an expansion. The index stood at 71 in October 2019. All three components of the index either set records or matched their highest readings. The current sales conditions rose 2 points to 90. Sales expectations in the next six months increased 3 points to 88, and buyer traffic was unchanged at 74.
Canadian Dollar Gains Ground On Strong Oil And U.S. Stimulus Hopes
USD/CAD is under pressure as the U.S. dollar is losing ground against a broad basket of currencies while WTI oil is trying to settle above the $41 level despite worries about the second wave of coronavirus in Europe.
The U.S. Dollar Index has managed to settle below 93.50 and tries to gain additional downside momentum on hopes for a new coronavirus aid package in the U.S.
According to recent reports, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin will resume negotiations today. Nancy Pelosi has previously set a deadline of October 20 for a vote in case Republicans and Democrats want to pass the new aid bill before the election.
Today, Canada reported that Wholesale Sales increased by 0.3% month-over-month in August. The report was fully in line with the analyst consensus.
This week, USD/CAD traders will have a chance to evaluate the latest inflation data from Canada which will be published on Wednesday. Inflation Rate is expected to grow by 0.4% year-over-year in September while Core Inflation Rate is projected to increase by 0.7%.
On Thursday, the Bank of Canada will announce its Interest Rate Decision and present its Monetary Policy Report. The rate is expected to stay unchanged at 0.25% so traders will focus on the Bank’s commentary about its plans to support the economy.
USD to CAD managed to settle below the support at 1.3200 and developed material downside momentum. The nearest support level for USD to CAD is located at 1.3135.
In case USD to CAD moves below this level, it will head towards the next support level at October lows at 1.3100. A move below 1.3100 will open the way to the test of the support at 1.3050.
On the upside, the previous support at 1.3200 will likely serve as the first resistance level for USD to CAD. The 20 EMA is located in the nearby so this resistance level is set to be strong.
If USD to CAD settles above the resistance at 1.3200, it will gain upside momentum and move towards the next resistance at the 50 EMA at 1.3240.
The S&P 500 did rally a bit during the trading session on Monday, reaching towards the 3500 level. That is a large, round, psychologically significant figure that will attract a certain amount of attention, and it has caused a bit of a reaction every time we approach it. Furthermore, it is worth noting that the Thursday candlestick was a hammer, the Friday candlestick was a shooting star, and now the Monday candlestick is looking very much like one that is showing resistance as well. Because of this, the technical analysis looks like we are certainly looking at a range as well.
S&P 500 Video 20.10.20
This setup a nice trade for those of you looking towards short-term charts, as we can go back and forth and show opportunities in both directions. Although one could make an argument that we have just formed a “double top”, I think that is probably jumping the gun. I would anticipate that there is a lot of support below at the 3400 level, and it is likely that we would find the 50 day EMA reaching towards that area by the time we get there. All things being equal, we are still very much in an uptrend, so that is something worth paying attention to.
At this point, the market is focusing on the idea of whether or not we get some type of stimulus, and of course the value of the US dollar. If the US dollar continues to strengthen, then it is very likely that will continue to weigh upon the stock market.
Silver markets have rallied a bit during the trading session on Monday, breaking above the 50 day EMA. Ultimately, this is a market that is trying to figure out where to go next, so having said that it is a scenario where we are probably going to continue to see buyers on dips. However, keep in mind that silver is highly sensitive to the trajectory of the US dollar, and therefore it is worth paying attention to the US Dollar Index if you are going to trade silver. As a general, and certainly over the last 90 days, we have seen a bit of a negative correlation. Having said that, if the US dollar is starting to strengthen, that probably works against silver insensate to lower levels.
SILVER Video 20.10.20
The $24 level should offer minor support, and most clearly the $22 level well. The 200 day EMA is sitting just above the $21 level, and of course the $20 level is psychologically and structurally important from previous trading. Because of this, I am not necessarily looking to short silver, but I do recognize that there is still a significant amount of headwinds out there that could come into play.
Given enough time, you also have to question whether or not we are going to see industrial demand as well, because the market also have to pay attention to whether or not there is going to be industrial usage, which is a major influence on what happens next with silver. While it is a precious metal, it play second fiddle to the gold market in that aspect.
The West Texas Intermediate Crude Oil market has done almost nothing during the trading session as we continue to dance around the same area that we have been in previously. The 200 day EMA sits just above, just as the 50 day EMA sits just below. Ultimately, this is a market that cannot seem to get its direction together, and therefore we simply go back and forth. There are concerns about demand, which of course is going to be an issue if we are going to have multiple economies around the world starting to slow down or even locked down. On the other hand, we also have an oversupply issue. The one thing that may send this market higher is the idea of stimulus.
Crude Oil Video 20.10.20
The Brent market also is going back and forth around a very tight range, as the 50 day EMA is currently sitting right at the $43 area. Ultimately, this is a market that also need to see some type of stimulus coming out of the United States in order for the rest of the world to suddenly jump in the idea of more demand for crude oil. If we do break higher, the 200 day EMA sitting just below the $45 level is going to be a major issue. Signs of exhaustion will be sold into, and that is from what I see the best trade available right now. To the downside, the $42 level is somewhat supportive, and most certainly the $40 level will be. We are essentially stuck in some type of tight range.
For a look at all of today’s economic events, check out our economic calendar.
While many European countries have introduced various virus-related restrictions, most of them have avoided serious lockdowns. Wales, which is part of the UK, was the first one to announce a new lockdown in order to contain the second wave of the virus.
The lockdown will begin on Friday and last for two weeks. During this period, most citizens will work from home while all-non essential businesses will have to close.
Such lockdowns deal significant damage to oil demand but oil traders have managed to shrug off demand worries and continued to provide support to oil near the $40 level.
Perhaps, traders are betting that OPEC+ will keep current production cuts for some more months instead of increasing production levels by 2 million barrels per day (bpd) from January 2021.
Recent reports indicate that OPEC+ countries are worried about the current pace of oil demand recovery. OPEC+ cannot afford another collapse of oil prices because it will signal that it has lost control of the oil market.
In this light, OPEC+ members may be eager to suffer from lower production levels for a few additional months in order to show that OPEC+ is still the leading player in the market.
Libya’s Oil Production Increases To 500,000 Bpd
According to a recent Bloomberg report, Libya managed to restart its biggest oil field, Sharara, and increased its total production to 500,000 bpd. The increase of Libya’s production is another headache for OPEC+ since Libya is exempt from the production cut deal due to the civil war.
Sharara’s production capacity is about 300,000 bpd but current production is near 110,000 bpd. Thus, the field has plenty of room to increase production even if we take into account the potential damage done by the civil war. The continued increase in Libya’s oil production is certainly a negative catalyst for the oil market.
In addition to Libya, oil traders will pay attention to U.S. oil production as the recent Baker Hughes Rig Count report indicated that the number of U.S. rigs drilling for oil increased by 12 to 205.
Most likely, the upcoming EIA Weekly Petroleum Status report will indicate an increase in U.S. domestic oil production. If this increase is not met with higher demand, crude inventories will increase and put pressure on oil prices. Tomorrow, traders will have a chance to take a look at the latest inventory data since API Crude Oil Stock Change report will be released.
Natural gas futures are trading nearly flat Monday after posting a whip-saw trade earlier in the session. The price action reflected the lack of clarity in the weather models and the timing of restored liquefied natural gas (LNG) movement in the Gulf area devastated by Hurricane Delta.
Natural Gas Intelligence (NGI) reported that analysts at EBW Analytics Group attributed heavy selling in after-hours trading Friday to reports that clearing a sunken barge obstructing the Calcasieu Ship Channel could take three to four weeks, news that put a damper on the outlook for LNG exports out of the Cameron LNG terminal.
Bespoke Weather Services said the market “no longer seems concerned” about the situation of Cameron LNG despite seemingly nothing changing regarding the timeline for clearing the channel.
Short-Term Weather Outlook
According to NatGasWeather for October 19 to October 25, “Cool conditions linger across the Midwest and Ohio Valley in the wake of a weekend cold shot with highs of only 30s to 50s. Most of the rest of the US will be comfortable to warm w/highs of 70s and 80s besides locally hotter 90s over portions of California and the Southwest. Conditions will warm across the Great Lakes/Ohio Valley as the week progresses with highs of 60s & 70s, while still chilly over the Northern Rockies & Plains with 20s – 40s. Overall, national demand will be high today, then low Tuesday – Friday.”
US Energy Information Administration Weekly Storage Report
The EIA reported last Thursday that domestic supplies of natural gas rose by 46 billion cubic feet (Bcf) for the week ended October 9.
Total stocks now stand at 3.877 trillion cubic feet (Tcf), up 388 Bcf from a year ago, and 353 Bcf above the five-year average, the government said.
Natural Gas Intelligence (NGI) reported that “Ahead of the EIA report, a Wall Street Journal survey of 11 analysts expected injections to range from 47 Bcf to 65 Bcf, with an average build of 56 Bcf. A Bloomberg survey of seven market participants had a tighter range of projections, which produced a median of 53 Bcf. Reuters polled 14 analysts, whose estimates ranged from increases of 46 Bcf to 74 Bcf, with a median injection of 55 Bcf. NGI estimated a 54 Bcf injection.”
Based on the estimates, the report was construed as bullish, but the news wasn’t earth-shattering enough to suggest the notion of a prolonged rally.
The short-term weather outlook is confusing especially around the October 28 to November 1 time period, where temperatures could turn extremely cold or stay in an average range, depending on which forecast you want to follow.
This means the direction of the market will likely be determined by LNG demand. If producers can overcome the issues in the Gulf then we expect demand to strengthen, which should underpin prices and eventually fuel the start of a strong uptrend.
The combination of cold temperatures and strong LNG demand will be bullish.
Natural gas markets have rallied a bit during the trading session after initially gapping lower on Monday, showing signs of confusion in choppiness yet again. The $2.65 level has offered a short-term support level, while the $2.80 level above is significant resistance. I think that given enough time we are probably going to see a lot of noisy behavior in this general vicinity, with the $3.00 level above offering a massive amount of resistance. Because of this, it is very likely that we continue to see a lot of back and forth, but it does appear that the upward trend continues. With that being the case, I do not have any interest in trying to get too cute with this trade, I simply want to buy it on short-term dips.
NATGAS Video 20.10.20
The 50 day EMA underneath will of course attract a certain amount of attention, especially as the indicator has been relatively reliable in the recent uptrend. If we can break above the 3.00$ level, then it is likely that the market can continue to go much higher. I do think that it does, as we are heading into a colder time of year for the northern hemisphere.
Furthermore, we have had a significant amount of bankruptcies in the United States, so that has taken some of the supply out of the market. Nonetheless, this is a cyclical time of year for natural gas the typically go higher, so that is something to keep in the back of your mind.
Gold markets rallied a bit during the trading session on Monday, breaking above the 50 day EMA quite decisively, but gave back those early gains to form a less than impressive candlestick. This suggests that gold still has further to go to the downside and quite frankly if the US dollar strengthens, that will be the main reason. While we have seen this market drift lower over time, I do not necessarily think that gold is something that you should be selling, because quite frankly there is a lot of risk out there and that is of the way gold works.
Gold Price Predictions Video 20.10.20
To the downside, the $1850 level is an area where we could be seen a certain amount of support in the future, and it does make a decent target if you were in fact to short the gold market. However, I do not think that shorting is the best way to go as the longer-term fundamental certainly do look like they are going to be good for gold. Below the $1850 level, we have the massively important $1800 level which has previously been the scene of a major breakout, and it is more than likely going to be an area where we see a bit of “market memory” come back into play.
Beyond that as well, we have the 200 day EMA which is approaching that level. It is because of this that I think somewhere between $1800 and $1850 we will find the buyers return into this market to continue the longer-term uptrend. I do not like trading against the overall trend, so I am perfectly content to simply look for value in gold and take advantage of it slowly, building up a bigger position as the market extends gains.