Oil Swings Between Gains And Losses Ahead Of OPEC+ Talks

Oil Video 09.04.20.

Key Negotiations Begin

Oil is having a choppy trading session, waiting for the results of the key OPEC+ meeting. Early reports suggest that both Russia and Saudi Arabia are ready to commit to meaningful production cuts but they want other countries to participate in the deal.

The U.S. believes that its oil production will decline “automatically” so there is no need to get into formal production cut agreements. Russia is not satisfied with this approach since it fears that U.S. shale oil companies will simply increase their market share at the expense of OPEC+ countries.

Russia has indicated that it may cut is oil production by as much as 2 million barrels per day (bpd) if the agreement is reached. However, it is not clear how much time will be required to implement such production cuts.

Previously, Russia has stated that it was difficult for the country to cut oil production due to the nature of deposits and cold climate. Saudi Arabia and U.S. are in better position to quickly adjust their oil production, but all major producers will have to participate in the deal – or there will be no deal at all.

Is The 10 Million Bpd Cut Big Enough To Improve The Supply/Demand Balance?

Russian oil company Rosneft stated that it believed that a 10 million bpd cut would be sufficient enough to rebalance the market. Rosneft estimates that 2020 oil demand will be lower by 5 million – 7 million bpd compared to 2019 levels.

In my opinion, this is an optimistic estimate. At this point, it looks like major countries will start to re-open their economies in May. However, everyone will be afraid of the second wave of the virus since the world economy cannot take another blow.

Thus, virus containment measures will be lifted gradually. In such environment, it’s hard to expect that oil demand will soon return to normal levels. While the equity market appears to be very optimistic despite the negative data, oil is a physical product, and real-life economic activity will ultimately dictate its price.

The economic projects look grim, especially in the near term. PIMCO, which is one of the biggest investment funds, predicted that U.S. GDP could fall by as much as 30% in the second quarter and 5% for the full year.

Similar hits to GDP would be seen all over the world. In this environment, a 10 million bpd cut may not be sufficient enough to balance the market. However, it would be a huge step forward if oil producers overcome their differences and agree to any coordinated action to curb supply.

Silver Price Daily Forecast – Silver Continues Its Upside Move

Silver Video 09.04.20.

Weaker Dollar And Optimistic Equity Markets Help Silver Gain More Ground

Silver continues its previous upside trend following the release of U.S. Initial Jobless Claims, which showed that 6.6 million of Americans filed for unemployment benefits.

The U.S. stock market was swinging between gains and losses on the news, but so far showed no signs of panic due to the grim data.

The U.S. dollar is losing ground against a broad basket of currencies, and the U.S. Dollar Index has slipped below the psychologically important 100 level. The U.S. dollar weakness is bullish for silver since it makes it more affordable for buyers who have other currencies.

The situation with coronavirus stabilizes, and European countries have already started to work on plans regarding how to reopen their economies. Obviously, the current virus containment measures will be lifted gradually since no one wants to risk provoking a second wave of infection.

However, the talk about reopening the economy after weeks of never-ending bad news is already sufficient enough to encourage investors.

Gold is showing upside, and it looks like the stage may be set for another leg up in the precious metal markets. A combination of positive equity market performance and weaker U.S. dollar is exactly what silver needs to have more upside in the current market environment.

Technical Analysis

silver april 9 2020

Silver prices have settled firmly above the 20 EMA at $14.75 and continue their current upside trend. Silver has previously received support just above the 20 EMA at $14.85. This level has been tested three times, and each time silver saw increased buying activity.

Thus, the $14.75 – $14.85 area is the first major support level for silver. I’d also expect that it won’t be easy for silver to go through the $14.30 – $14.60 area in case it breaches the first material support level.

On the upside, the next material resistance is at 50 EMA at $15.60. This level is close to the recent top which was reached a few days ago. In case silver is able to get above the 50 EMA level and settle there, it will have a very good chance to get back to pre-crisis levels at $16.50 and complete the current rebound.

U.S. Stocks Mixed After Initial Jobless Claims Release

U.S. Initial Jobless Claims Show Major Increase In Unemployment

U.S. Initial Jobless Claims release showed that 6.6 million Americans filed for unemployment benefits. Last week’s number was revised from 6.6 million to 6.9 million. The analyst concensus called for an increase of 5.25 million but estimates varied widely.

In the past three weeks, almost 16 million Americans filed for unemployment benefits. The economy is losing jobs at an unprecedented pace, but it remains to be seen whether the market will react negatively to the news since previous reports were also dismal but did not prevent stocks from showing upside.

World Leaders Start To Think About Reopening Economies

According to data from Johns Hopkins University, there are 432,438 coronavirus cases in the U.S., 152,446 cases in Spain, 139,422 cases in Italy and 113,296 cases in Germany.

While the total numbers are big, the pace of contagion is slowing down, especially in Europe, which entered the crisis earlier than U.S. In this light, it’s not surprising that governments start to prepare their early plans on how to reopen economies that received a mighty blow from virus containment measures.

Germany stated that a gradual return to normal life was possible if the current trend continued and that the country will look at the situation after the Easter holidays.

As per Italy’s Prime Minister Giuseppe Conte, the country may gradually lift existing restrictions by the end of April. The U.S. President Donald Trump is optimistic as usual and wants to see the U.S. economy reopen with a ‘big bang’. However, it’s still too early to tell when this will happen.

OPEC+ Talks Begin

Oil is experiencing a choppy trading session as traders and investors try to guess whether oil producing countries will reach consensus today. A lot is at stake since coronavirus dealt a heavy blow to oil demand and the world may run out of oil storage in a few months if no production cut measures are implemented.

The results of the talks could have a material impact on general market dynamics since oil stocks are guaranteed to be highly sensitive to oil price movements today.

March Market Recap: Credit, Crisis, and Coronavirus | What you need to know

As a matter of fact, in March financial markets have been uniquely driven by news and updates about the pandemic situation: from the equity market to FX and commodities all major movements have been driven by the COVID-19.

Traders and fund managers have basically put the economic calendar on the side and focused on the geographical spread of the virus and government measures about it. The monetary interventions of the Central Banks and the fiscal stimulus, recently launched by the main countries will need the epidemic to dissolve before looking to have some effect; unfortunately, the development phase of contagions in America leaves no room for optimism for the next 40/50 days.

In the meantime, the world economic context is exposed to an unprecedented drop that no one will be able to tackle in the short term. Currently, the priority is to avoid a chain of defaults that could transform this crisis into a global depression and therefore it is absolutely essential to provide all the necessary liquidity, both from the Central Banks and from the governments, to financially support all the main sectors of the economy. The United States rapidly provided monetary and fiscal support interventions but is preparing to be hit by the speculative credit crisis that is circulating abundantly in the US economy.

US and Europe: Buyback, Fiscal Policy and Eurobonds

All the attention and hopes are concentrated only on the recently approved fiscal plan, but the risk is that if the crisis seriously hits the financial system, the all tax plan might not be enough to support the system. We will see what actions will be taken but it will be impossible to find the money necessary to save everyone and the priority will be given to the most representative companies for employment, industrial / technological and symbolic value.

The problem of outstanding speculative credit is not only a problem of the United States. In Europe, Germany’s tax plan (4.5% of GDP) is ready to be implemented but we can expect it will be implemented at the bottom of the crisis and not immediately.

Italy and Spain will come out with the economy on their knees and a public debt totally out of control. The debate on Eurobonds has just began and will certainly be a source of growing political tension between European partners. However, one thing seems certain: the virus created the conditions for deciding whether further EU integration will be carried out or whether everything will be skipped.

Personally, I believe that Germany’s deflagration of the Euro area is not convenient and a compromise will have to be found towards a revision of the functioning of the Union; otherwise we will have another global crisis that will overlap with the one currently underway and it is not daring to think about what we will face in a similar scenario. When the contagion from Coronavirus is over, the western economy will end up with a public debt of Japanese size and the Central Banks that will have to print money indefinitely.

In this context, a potential long-term (multi-year) upward trend for the Gold and a long phase of dollar weakness due to the monetization of the US debt (already started) is outlined. Certainly, when the lockdown is overcome, the markets will rise but the prospects will no longer be the same as before. If labor costs rise and taxes for companies also, ROE is destined to fall, as well as EPS, which can no longer be manipulated by the Buy Backs that have already been stopped.

Buy Backs have been the main driver of the stock market in the last 10 years. From 2009 to 2019, buybacks have topped to 5.23 trillion USD (it equals 20% of US GDP), which together with dividends (approximately 3.5 trillion USD in the last 10 years) have been the main component of stocks market growth.

Our Selected Assets and Investment Opportunities

In the corporate and government bonds, the best investment opportunities might come from the EM (Emerging Markets), where the return on capital will be greater and the economic and financial equilibriums less compromised or, at least, with a greater chance of recovery.

Gold has also delivered positive returns year to date, up nearly 5%. The precious metal, after the strong sell off in the beginning of March, received a boost from a lighter dollar first and then from the shutdown of swiss refineries responsible for more than 70% of the market production. Gold closed in march priced above 1,550$. We still have a long view in the medium term, giving good buy opportunities at every contraction of the main trend.

On FX market, volatility came back in March, where most of the pairs have been mainly driven by movements in US dollar. In the first days of the month, in the extend of an ultra-expansive FED, the greenback had lost its characteristics of safe haven, with a devaluation against the main cross.

A subsequent strengthening of the currency appeared again during a consolidated drop in the equities. This finds the explanation in the macro behaviour of the investments: 70% of the investors get financed in USD, in order to invest on different asset classes. In the moment of the disinvestment, they purchase USD pushing high the value of the currency.

On the EURUSD we have seen the pair being pushed to its lowest levels since April 2017, breaking 1.0650, to jump back on 1.10 level at the end of the month. In general, we could expect in the future new interest in purchasing US dollar in the moment that equities might suffer other losses.

On the energy side, WTI has been on the radar of all market participants, caught in a perfect storm at the OPEC+ meeting held on March 7th, which saw the collapse in negotiations between Saudi Arabia and Russia. This led to oil prices falling by more than 60%, trading in March as low as 19$ per barrel. The combination of both a demand shock (from the coronavirus outbreak) and a supply shock (Saudi increase in production) is essentially unprecedented, with no equivalent in the last 30 years that we can point to.

Oil prices we see currently are uneconomical for almost all market participants. While higher-cost producers like US shale clearly cannot afford to produce at the current prices, Russia for sure is far away from being able to have positive margins from the production. Saudi Arabia, even though is having very low production costs, also has domestic spending that need in the long-term oil prices to increase. In general, it is calculated that a fair value for oil producers is 42$ per barrel. The clear buy opportunity has to be weighted, taking in consideration the contango of the oil futures.

Instruments Mar-20 6 months YTD
S&P 500 -12.74% -14.37% -27.09%
DAX -18.47% -27.30% -34.92%
GOLD -0.81% 6.65% 3.87%
WTI -54.77% -63.18% -67.25%
EURUSD -0.14% 1.14% -1.74%
GBPUSD -3.04% 1.86% -5.87%
USDJPY 0.07% -0.91% -0.57%

The article was written by Rosario Pisana, Chief Trader and Analysist at MayfairBrooks

GBP/USD Daily Forecast – U.S. Initial Jobless Claims Are In Spotlight Again

GBP/USD Video 09.04.20.

Waiting For The Key Economic Release Of The Week

GBP/USD remains above the 20 EMA level as the market is encouraged by early signs that the coronavirus pandemic is under control and turns its attention to riskier assets.

However, the U.S. dollar is still holding its ground against the broad basket of currencies, and the U.S. Dollar Index is above the psychologically important 100 level.

The condition of UK Prime Minister Boris Johnson, who fights against coronavirus in a hospital, has improved. Boris Johnson is still in intensive care but is able to sit on the bed and talk to medical staff.

Previously, the condition of the Prime Minister did not have material impact on the strength of the British pound. Now that his condition has improved, traders should not expect any influence on GBP/USD.

Several economic releases have already been published in the UK. Construction Output , Industrial Production and Manufacturing Production showed declines year-over-year.

Construction Output declined by 2.7%, Industrial Production declined by 2.8%, while Manufacturing Production took a hit of 3.9%. Investors and traders should note that this is data for February. When the data for March is released, it will look much worse.

The key economic release of the day is the U.S. Initial Jobless Claims. The previous release showed that 6.6 million Americans filed for unemployment benefits.

This week’s release is also expected to show a massive increase in unemployment. The current consensus is that 5.25 million applications were filed, but estimates wary widely.

Previously, markets were able to shrug off negative employment data and focus on first signs of improvements on the coronavirus front. It remains to be seen whether they will be able to withstand the hit from employment data this time.

Technical Analysis

gbp usd april 9 2020

GBP/USD is trading in the range between the 20 EMA at 1.2300 and 50 EMA at 1.2480. The 20 EMA serves as the first material support level for the pair.

If this level is breached to the downside, GBP/USD will likely re-test the recent lows at 1.2170.

The 50 EMA serves as a major resistance level and is located at the local highs which have been tested several times.

If this major level is breached to the upside, GBP/USD will have a good chance to get to pre-crisis levels at 1.2750 and complete the current rebound.

Natural Gas Price Forecast – Natural Gas Markets Gap Higher And Then Give Up Gains

Natural gas markets gapped a bit higher to open up the trading session on Wednesday but then turned around to fall significantly to fill the gap. That being said, the 50 day EMA has offered a bit of support and it looks as if the market is simply trying to figure out where to go next. That being said, I have a hard time believing that the natural gas markets will rally for the longer term, as the demand for natural gas is going to drop off of a cliff over the next several weeks. After all, even though there are some hopeful signs of the coronavirus infection rate flattening a bit in the United States, the reality is that warmer temperatures will continue to be a major problem for natural gas as well. This point, it’s hard to imagine where the true demand will come from.

NATGAS Video 09.04.20

That being said, there could be a slew of bankruptcies coming in those bankruptcies will more than likely offer less supply and that might be the reason the market turns around and goes higher. That being said, until that happens it’s difficult to get overly bullish. In fact, I believe that the $2.00 level should be rather resistive and difficult to break through. If we do, then the market will probably have more of a relief rally towards the $2.20 level. At this point though, I’m looking to fade signs of exhaustion as the latest move has been a bit parabolic, and countertrend.

USD/CAD Daily Forecast – Canadian Dollar Gains Ground Amid Risk-On Mode In The Markets

USD/CAD Video 08.04.20.

Stronger Oil And Optimistic Equity Markets Boost Canadian Dollar

USD/CAD continues to stay below the 20 EMA level as optimism in the global markets support riskier assets like the Canadian dollar.

Earlier, the U.S. dollar tried to rebound, and the U.S. Dollar Index is still above the 100 level. However, the comments of Dr. Anthony Fauci, who is the director of the U.S. National Institute of Allergy and Infectious Diseases and a key speaker during the current coronavirus crisis, helped riskier assets.

According to Dr. Fauci, the U.S. health officials are already developing plans on how the country will return to normal life in case the virus containment measures prove to be effective.

No exact steps are expected at this time, and current social distancing measures will be continued, but the U.S. needs a plan on how to re-open the economy since each day spent in a lockdown puts pressure on the economy.

Another catalyst playing in favor of the Canadian dollar today is the strength on the oil price front. Oil is gaining ground ahead of the OPEC+ meeting despite the increase in oil inventories.

Oil production is an important part of the Canadian economy so oil price strength often translates into the Canadian dollar strength.

While speculative traders could make some bets on oil ahead of the meeting and cause volatility in USD/CAD, the real action will take place tomorrow when the results of the OPEC+ meeting will be made public.

Technical Analysis

usd cad april 8 2020

USD/CAD has breached the 20 EMA level and continues its downside move. The next support for the pair is located near the recent lows at 1.3925. USD/CAD has already made an attempt to test this level but received material buyer support near 1.3950.

If the support at 1.3925 is breached to the downside, the next support level for the pair is located at the 50 EMA at 1.3850. This move would be possible if oil prices rally in case of a good oil production cut deal.

On the upside, the nearest resistance is at 20 EMA at 1.4085. In case this level is breached to the upside, the pair could head towards the next material resistance near the 1.4250 level.

Oil Is Up Ahead Of OPEC+ Meeting Despite Increase In Inventories

Oil Video 08.04.20.

Oil Inventories Increase Further

Oil had a choppy trading session today as traders prepared themselves for OPEC+ meeting which is scheduled for April 9, 2020.

Previous days were full of media reports that described positions of various oil producers ahead of the meeting. Today, the media is mostly silent so we can assume that the period of “bargaining through media” is over and the oil market players are finalizing their true negotiating positions ahead of the meeting.

Yesterday, API Crude Oil Stock Change data showed an increase in oil inventories of 11.9 million barrels. Today, the EIA Petroleum Inventories showed an increase of 15.2 million barrels. It is not surprising that inventories continue to increase as demand is under pressure from virus containment measures.

Importantly, the EIA report indicated a decrease in oil production. Saudi Arabia and Russia have indicated that they want to see U.S. cutting its oil production, or no production cut deal would be reached.

The U.S. has problems with a coordinated production cut since oil is produced by many independent companies while anti-trust laws make it hard to cooperate in order to boost oil prices.

If the U.S. production falls “automatically”, the U.S. side can use it as an argument that the country also participates in production cuts.

EIA Expects WTI oil at $29 in 2020

The U.S. Energy Information Administration has recently published its short-term energy outlook in which it stated that it expected that Brent oil prices would average $33 per barrel in 2020, while WTI oil prices would average $29 per barrel.

The previous forecast was decreased by $10 as the hit to oil demand was bigger than expected.

The recent high for WTI oil was near the $29 level, and it remains to be seen whether an oil production cut deal could help oil prices gain a foothold above this level.

At this point, it looks like the destruction of oil demand caused by virus containment measures will lead to sustained pressure on oil prices in the coming months even if a production cut deal is reached.

In this light, EIA projections seem realistic as high inventories will continue to impact oil market even when the situation with supply/demand balance gets better.

 

The Ray of Hope Fades as COVID-19 Cases Rise and EU Member States Find Little in Common

In the early part of the week, we saw the European equity markets find support. The support came in hopes of a slowdown in the number of coronavirus cases that drove demand for riskier assets.

On Monday, we had raised concerns over the market’s eagerness to bet on a single number rather than identify a trend.

While the European equity markets found further support on Tuesday, off the back of market positive COVID-19 numbers for Monday, uncertainty has set in once more.

Through the European session today, we have seen the European markets fall back into the red. Barring a bounce back, we are likely to see an end to a run of 3 consecutive days in the green.

Granted, the pullback is minor relative to moves seen of late but it is a pullback nonetheless.

Coronavirus Numbers in Focus

When we consider the recent coronavirus numbers, there must be some caution in taking single day updates in isolation.

We remain focused on France, Germany, Italy, and Spain from an EU perspective as these are the worst-hit member states.

As at the time of writing, the total number of coronavirus cases across the 4 states totaled 500,523 on Tuesday, giving a daily increase of 29,916. While down from a 42,323 spike from Saturday, it’s up from a lowly 16,711 increase on Sunday…

More significantly was a jump from Monday’s 921 low back to 3,000 levels in Italy. The length of the current lockdown should begin to yield significant results, yet we are still seeing a steady rise on average.

Figures out of France suggest that reporting and testing frequencies continue to influence. On Sunday, we saw the number of new cases fall from a Saturday 25,615 to a Sunday 2,886. On Tuesday, the total number of new cases rose by 11,059. By EU member state standards, the rise was significant. Only Spain came close, with a 10,015 increase on the same day.

So, the markets will need to become more patient and consider means and medians over individual daily numbers.

As we rapidly approach mid-April, Italy is certainly not going to see containment measures ease at the end of this week…

That simply spells more trouble for the Italian and EU economy.

The EU Model

As we continue to consider the economic ramifications of the coronavirus, not just on the EU but beyond, the EU model is in question once more.

Only today, news hit the news wires of EU ministers having failed to agree on a coronavirus economic rescue package.

If we look at the UK, the U.S, Japan, China, and numerous other countries, the EU is well behind the curve. All of these nations have delivered some form of a fiscal stimulus package or at least agreed in principle.

Spain reportedly warned of the country’s EU membership and one can only imagine that a number of others are also questioning their membership.

For “The Establishment”, Britain’s withdrawal couldn’t have come at a worse time. The British government is free from obligations and can go about its business to combat the effects of the virus…

France, Germany, and Italy are also suffering, though economically there is no member state worse off than Italy.

Unsurprisingly Italy was pushing for an Italian Job today… The Netherlands, on the other hand, had different ideas.

Why?

Perhaps because The Netherlands has reported just coronavirus 20,549 cases. This is one-fifth of those reported by any of the 4 member states that we follow.

By GDP, The Netherlands ranks below all 4 member states. When considering the economic impact of COVID-19, some support must be expected, however.

So, with there now being two sides to the COVID-19 rescue package, there may also be 2-sides to the very existence of the EU as we know it today.

At the time of writing, the EUR was down by just 0.08% to $1.08822 against the Greenback.

EUR/USD 08/04/20 Hourly Chart

Perhaps the markets simply don’t believe that the likes of Italy and Spain would jump ship. Well, perhaps a threat from Germany would sound the alarm bells.

The EU’s largest economy would undoubtedly be forced to foot a large portion of any rescue package. Imagine that, with the more than 100,000 coronavirus cases…

The German electorate is not going to like that, particularly when the Brits are paying nada…

Silver Price Daily Forecast – The Current Upside Trend Remains Intact

Silver Video 08.04.20

Silver Holds Above $15.00 As Markets Believe That Virus Containment Measures Are Working

Silver continues its upside move after it breached the 20 EMA level several days ago. Equity markets remain optimistic which also helps precious metals in the current market environment.

The U.S. Dollar Index has corrected to the 100 level but does not experience additional downside despite the positive dynamics in riskier assets. Meanwhile, gold continues its attempts to get above the $1700 level, but so far these attempts have been futile.

I maintain my conviction that the whole precious metal segment will get a boost if gold manages to settle above $1700 as such a move will lead to an influx of additional money into the whole sector.

At this point, it is unclear which additional catalysts are necessary for precious metal upside.

On the one hand, another leg down in equity market will lead to increased safe haven buying. However, it remains to be seen whether precious metals will serve as safe haven assets in this scenario.

During the early stage of the current crisis, only the U.S. dollar and the U.S. Treasuries were seen as bullet-proof safe haven assets, while other asset classes often experienced downside on negative economic or healthcare news.

On the other hand, U.S. dollar weakness could be of great help for silver and other precious metals. Such a scenario demands continued improvements in investor confidence, which could come from stabilization on the virus front or from new economic stimulus.

Technical Analysis

silver april 8 2020

Silver stays above the 20 EMA and continues its upside trend. The nearest resistance is located at the 50 EMA level at $15.70. Silver has already made an attempt to get there, but this attempt was stopped at $15.50.

This was a very fast move, so silver had little chance to get above $15.70 without first settling below the resistance level. If the 50 EMA level is breached to the upside, silver will be able to get to pre-crisis levels at $16.50 and complete the rebound.

The nearest support for silver is at the 20 EMA level at $14.70. In case silver prices fall below this support level, silver will find itself back in the $13.80 – $14.70 range, although I’d expect some additional support in the $14.30 – $14.60 area.

U.S. Stocks Set To Open Higher As Investors Hope That The Upside Trend Will Continue

The Absence Of Economic Data Helps The Market Gain More Ground

S&P 500 futures are gaining about 1% in premarket trading as investors hope that the situation with coronavirus is stabilizing.

Importantly, the first half of this week was light on the economic data side, so the market has not been tested by negative news.

This situation will change tomorrow as the U.S. Initial Jobless Claims data will be released. The previous release indicated that 6.6 million of Americans applied for unemployment benefits, while the analyst consensus for this week’s released calls for 5.25 million Initial Jobless Claims.

Previously, the market was able to shrug off the negative employment data, but it will be more difficult to do this time since the market is at higher levels.

Oil Stocks May Experience Big Moves Ahead Of OPEC+ Meeting

Oil price dynamics could play a role in today’s trading since an ultra-important meeting of OPEC+ countries is scheduled for April 9, and traders may start placing their speculative bets today.

If any big moves in oil occur, oil stocks will surely follow, impacting general market dynamics.

As usual, the major oil producers like Exxon Mobil or Chevron are in spotlight. So far, their shares have shown better dynamics than oil prices during the current crisis, but it remains to be seen whether they will be able to withstand another leg down in oil if it happens.

Europe Fails To Reach Consensus On Economic Aid Plan

EU finance ministers have spent all night on negotiations about European support for the struggling economies. Discussions were put on hold until Thursday.

Hard-hit Italy and Spain argue that European “coronabonds” should be issued, while countries like Germany and Netherlands are against mutualization of debt.

The global economy is very connected nowadays, so a coordinated action from all major countries is necessary to reduce the damage from virus containment measures.

So far, governments and central banks provided the markets with sufficient liqudity, but even the unprecedented measures won’t be sufficient enough to support the world economy after the acute phase of the crisis.

At this point, the equity markets are optimistic that appropriate solutions will be found, and the companies will get enough support to get through virus-induced crisis.

If this confidence evaporates, we’ll see another leg down in U.S. equities.

Adaptive Fibonacci Suggests A Deeper Bottom Will Setup – Part I

Our Adaptive Fibonacci Price Modeling system suggests a much deeper price move is in the works and the current price rally will likely end near resistance levels identified by the Adaptive Fibonacci Price Modeling system.  We are posting this research post for friends and followers to help them understand the true structure of price and to allow them to prepare for what we believe will become a much deeper downside price move in the future.

Fibonacci Price Theory teaches us that price moves in waves within up and down price cycles.  The recent peak in price, near February 25, 2020, has resulted in a very deep -36% price collapse in the S&P 500 (ES) recently.  This downside move has been mostly straight down, excluding a brief retracement in early March.  The strength of this downside price move suggests a moderate upside price recovery will take place before the next downside leg sets up.

S&P 500 Weekly Chart of 2008-09 Credit Crisis Market Collapse

Throughout the 2008-09 Credit Crisis market collapse, prices staged multiple recovery attempts within the downward price trend.  The first, after the initial -20.88% selloff in late 2007, resulted in a +14.83% price recovery that lasted for over 15+ weeks.  The second recovery, near the end of July 2008, resulted in a +9.56% recovery after a nearly -17% price decline.  After this brief recovery in July 2008, the price collapsed by a massive -44% from August to November 2008.

Daily S&P 500 Chart

This Daily ES chart highlights the first two levels of resistance at 2700 & 2870 that could stall the rally and prompt a downside price move in the future. Support is currently at 2450.  We believe the 2700 level will act as a soft ceiling in the ES where price may attempt to rally, briefly, above this level, which it did yesterday, then pull back and pause as selling pressure re-enters the market.  The 2870 level may act as a hard ceiling where price may attempt to reach this level, but immediately reverse back to the downside.

Overall, we believe continued selling as a result of forward global economic expectations is the most obvious outcome where a deeper price bottom will setup sometime later this spring or early summer.

Weekly S&P 500 Chart

This Weekly S&P 500 chart (ES) shows a possible outcome for price going forward if another downside move starts.  A new downside price move to levels near to, or just below, the 2015~16 low price range is not unreasonable. From this level, we believe a “Flag” formation will setup creating an extended price bottom pattern down at those extreme lows.  We believe this “Flag” formation will end near August~October 2020, just before the 2020 elections and prompt the beginning of a new upside price recovery in the US and global markets.

This is a large forward-looking projection and you may be rolling your eyes, but they are very possible. In fact, last year we predicted the months and price levels in which gold and oil would start new major trends, and we did this 8 months before they took place, similar to what we are proposing here.

Concluding Thoughts:

The rotation in price setup by this brief upside price move will set up a new Fibonacci downside and upside price target range.  We believe it is essential for price to continue this type of rotation as the eventual bottom sets up in the US and global markets.  We believe the true price bottom will happen only after the virus event has subsided and global economies begin to start functioning like normal again.

Currently, there is simply too much of a world-wide disruption to expect that the bottom has already set up near last year’s (2019) brief price lows.  The scale and scope of the current downside price collapse do not properly reflect the total scope of this global virus event yet – it is still a reactionary move in price that has yet to properly digest the total scope of the global economic disruptions. There is a chance for stronger bounce/rally in the next few weeks/months if the virus can start to be contained, and that will continue to mimic that of the 2000 tech bubble. Believe it or not, there is a big similarity to what happened then, to what is happening now in terms of price action and market sentiment. Read article and see these charts.

In other words, we believe more selling will be seen in the global markets and more economic contraction will take place until we are safely beyond this virus event.  The longer the global economic shutdown continues, the more likely we are to see a deeper price bottom in the future and the more likely we are to see more extensive economic collateral damage across the world. No matter which way the markets move we will follow and trade the price action and profit. That is the benefit of following price vs trying to trade prediction, fundamental data etc..

In Part II of this research article, we’ll dig deeper into the underlying components that support our research.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders.

I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts visit my Active ETF Trading Newsletter.

We all have trading accounts, and while our trading accounts are important, what is even more important are our long-term investment and retirement accounts. Why? Because they are, in most cases, our largest store of wealth other than our homes, and if they are not protected during a time like this, you could lose 25-50% or more of your entire net worth. The good news is we can preserve and even grow our long term capital when things get ugly like they are now and ill show you how and one of the best trades is one your financial advisor will never let you do because they do not make money from the trade/position.

If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Long-Term Investing Signals which we issued a new signal for subscribers.

Ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

 

Toilet Paper Hoarding Pushes Investors to Grab ‘Ahold’ of Stocks

Since registering a two-year low on March 12, Ahold’s stocks have surged by more than 20 percent, outpacing the gains seen in Tesco (6.16%) and Carrefour (18.9%) for the same period. The Netherlands-based company’s share price has also reclaimed a year-to-date advance, while Tesco and Carrefour remain in the red for the time being.

Social distancing: bringing consumers closer to grocers

Koninklijke Ahold Delhaize NV boasts over 6,700 stores across Europe and the US, with the latter accounting for nearly 2,000 stores, and is complemented by its Indonesian joint-venture, Super Indo. As the virus wreaks havoc in other sectors of the economy, brick-and-mortar grocery stores are proving to be the backbones of their communities amid the crisis, providing daily necessities to households that are left with scarce avenues for getting basic goods in light of lockdown measures.

Given the seismic shift in consumer behavior wrought by Covid-19, many grocery stores around the world have seen double-digit same-store growth, as well as bigger amounts purchased per customer. Although the initial hoarding will subside and give way to more sustainable-sized grocery runs, the fact that most families are barred from eating anywhere else but at home, is translating into a significant boost for grocery store receipts. The steady cash flow should in turn help Ahold’s liquidity position to cover any sudden shifts in inventory and labour costs, aided by the company’s cash pile of over 4.2 billion Euros.

Covid-19 makes online delivery a friend, no longer a foe

Traditional grocers must seize this opportunity offered amid the crisis to ramp up their online offerings. Ahold’s geographical reach and economies of scale may better enable the company in getting groceries to customers’ doorsteps, with the Covid-19 crisis potentially being a major catalyst towards the company’s ambitions of doubling net consumer online sales to around seven billion Euros by 2021.

With online grocery shopping accounting for just five percent of the total market worth an estimated $800 billion in the US alone, there’s certainly more potential to ramp up for Ahold’s US-based online grocery delivery platform, Peapod. This could complement the company’s online endeavors in Europe, where online sales accounted for about 10 and 20 percent of its total sales in Belgium and the Netherlands, respectively, as of end-2019.

Beware global supply chain disruptions

However, if the coronavirus outbreak has a longer-than-expected run in major economies, there remains the risk that global supply chains could be majorly disrupted. Retailers may have to face the costs of overcoming lockdown measures in ensuring adequate stocks, both online and in-store. Supplies may also come at a premium, if there are more manufacturing-plant shutdowns, a scarcity of agricultural workers, or even driver shortages.

Investors expected to keep away from AGM, but not from stocks

The risks and opportunities during this pandemic will certainly colour the company’s AGM today, April 8. Although shareholders are being urged not to attend the meeting in-person, the resilience of Ahold Delhaize may remain a tempting proposition in the stock markets.

Written on 04/08/20 08:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


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GBP/USD Daily Forecast – U.S. Dollar Gains Ground As Attention Turns To Economic Woes

GBP/USD Video 08.04.20.

U.S. Dollar Is Showing Strength As Previous Optimism Fades

GBP/USD continues to trade near the 20 EMA level as the market is trying to assess coronavirus-related risks.

Yesterday, the British pound gained ground against the U.S. dollar amid general optimism in the markets. As investors turned to riskier assets, the U.S. dollar was losing ground against a broad basket of currencies, and the U.S. Dollar Index fell below 100.

However, global markets are once again turning their attention to the negative consequences of virus containment measures, and the U.S. Dollar Index has managed to get above 100.

Data from Johns Hopkins University shows that there are 399,886 coronavirus cases in the U.S. and 55,949 cases in the UK. While the pace of new infections has moderated, there’s still a lot of work to do, and it’s hard to expect that virus containment measures will be lifted soon.

Meanwhile, British Prime Minister Boris Johnson, who has coronavirus, has spent his second night in intensive care. As per the comments of Foreign Secretary Dominic Raab, Johnson was receiving oxygen support but his condition was stable.

So far, the condition of the Prime Minister had no material impact on GBP/USD trading, and I expect that it won’t have any impact in the future unless his condition seriously worsens.

No material economic releases are expected today, but U.S. FOMC Minutes will be released. Market participants will digest additional information on how the U.S. Federal Reserve decided to cut rates and which policy measures were on the table.

Technical Analysis

gbp usd april 8 2020

GBP/USD continues to trade near the 20 EMA level. The pair has tested the first resistance level at 1.2385 but failed to get higher and pulled back.

If the resistance level at 1.2385 is breached to the upside, GBP/USD will have a chance to test the major resistance level near the 50 EMA at 1.2480.

However, GBP/USD will first need to stay above the 20 EMA level, as falling below this level will increase chances of a test of the next support level at 1.2170.

At this point, GBP/USD continues to trade in a local downside channel. This downside trend remained intact despite the recent attempts of the British pound to gain ground.

Investors Took an Untimely Ride on the Covid19 Roller Coaster

Markets

The Bad

The S&P gave up nearly 100 points on the day as the two -day stock market rally petered out. US equities came off pretty hard in the US afternoon session despite substantial gains in Europe and Asia. US stocks had been higher for most of the course on good volumes with a notable increase in Hedge Fund participation, heavily skewed to the buy-side covering shorts in banks, industrial & airlines. But markets came under pressure in late afternoon trading, coinciding with a sharp slide in oil prices, which ended the US session almost 10% lower.

Sure the oil market slide got the bus rolling downhill. But with investors focused on Covid19 curves, so when New York, the epicenter of the US outbreak, announced 731 deaths overnight, its greatest single-day count and suggesting there could be a “lag” in reporting. The equity market rally bus hit a brick wall—leaving investors to execute their much-practiced version of a position cut and run. All of which left investors scratching their heads again, trying to balance out the positive government’s fiscal response in light of what the economic damage will be to a possible extended lockdown scenario.

The Confusion

Trying to factor in the mix of epidemiology, psychology, and politics is troubling. And while we know, economic data is missing or poor quality, but if the Covid19 data proves to be unreliable, then we will be in a world of hurt afloat in a sea of red in a rudderless ship, especially with investors trading on sentiment rather than the economics for now. So with a question about the reliability getting priced into the equation, this could gnawingly remain front in center on investors’ minds over the short term,  so it’s likely to be a wobbly open in Asia today.

The Good

But assuming the reporting lag was a one-off event, the buy-in yesterday suggests there some big funds looking to put money to work as arguably there a ton of cash on the sidelines. And with thoughts that we’re probably closer to peak Covid19 than not, the bids will probably come back provided the NY states data proves reliable from here on out. The plunge could be limited.

Most Covid19 curve watchers thought the forecast as far back as mid-March was that cases in NY were set to peak in mid to end -April. So investors were taken by surprise this week as the earlier than expected leveling of the case count data is being consumed more readily than a hard-to-evaluate economic forecast.

But there’s still a series of good news stories around the world, suggesting staying at home is the one practice that flattens the curve faster than people understand. In Europe, Austria and Denmark announced timelines for ending their lockdowns. Spain and Italy, which represent well over half the fatalities on the continent, have reported signs of improvement.

Oil markets 

Oil prices plummeted overnight after The US Energy Information Administration lowered its 2020 forecast for West Texas Intermediate and Brent crude prices sending oil traders into a frantic selling tizzy. The stark reality is setting in that the proposed production cut deal is unlikely to be anywhere big enough to offset the unparalleled demand devastation.

The current figures being discussed – OPEC+ at 10Mbd plus 5Mbd from other producers where the US position appears to be that shale production is already falling, and that is how it will contribute with possibly offering up adding storage space – is probably not enough to save 2Q over-supply.

So now the challenge remains to the extent producers are willing to cut or even logistically how fast they can cap the wells, as 2Q looks over-supplied by 30mb/d on an 18mb/d demand decline, suggest filling storage in 2Q remains likely unless producer can pull off a much deeper cut.

This view was echoed by Fatih Birol, head of the IEA “Even if there was 10m b/d of cuts, in our view we could still see a building of stocks of 15m b/d,” Mr. Birol said. “I see that there is a growing consensus that this [the G20] is the forum to address this problem.”

At this stage of the drama, all eyes and ears remain trained on both the US actually response and the outcome of OPEC+ virtually meeting. Fingers remain crossed over a plethora of cross-asset markets that the producers can formulate a response that puts a floor under oil price as the recent prices in the $20s reflect the dual demand and supply shock and is not sustainable for any of the primary producers.

With millions of jobs and the stability of the global economy at risk, someone needs to compromise, or it will leave the industry in tatters.

Gold markets

It’s been another secure day buying of gold, although we are about $25 off the overnight highs. But one has to believe market makers who were asked to reduce their short position trading risks as the volatility on EFP mushroomed again; has some play in a gold surge at yesterday Asia open when EFP peaked at 65.

Swiss refineries reopening this week, the production rate is low compared to actual physical demand due to manpower issues on the ground. Still, while this will gradually decrease this week as more return to work. Supply chains/logistics are always challenging, with commercial airlines grounded suggest that market makers will continue to hide in the pipes only entertaining client demand at a premium and undoubtedly little interest contributing to the ECN market unless it suits.

A bit troubling for price action this morning is that gold has been non-reactive to the slide in US equity markets even more so given the fact the DXY remains below 100.

Currency Markets 

The dollar suffered a sharp correction on Tuesday, starting at the European Open in a seemingly delayed reaction to Monday’s substantial US equity gains. Both DM and EM currencies have risen as risk-on sentiment has squeezed safe-haven dollar positioning. But some of these gains were pared as the US equity market turned tentatively sour.

But what is critical and suggest the USD liquidity strain is greately abating is that Traders will find it reassuring that expected correlations seem to work, i.e., the dollar strengthening during risk-off times but then weakening during recovery phases. This will give them much more confidence to sell the dollar when risk turns on. But in the meantime, we should expect the USD to turtle anytime soon as the greenback r is effectively the ultimate safe haven, and continues to trade as such at the moment.

The Ringgit

The Ringgit remained held hostage and tethered to the oil price yo-yo as all ears and eyes remain trained on this week’s OPEC+ meeting. But the outlook remains slightly positive nudged along by the government’s stimulus efforts and signs that the Covid19 crisis is abating in some hot spots around the world.

But more important in this view is that China is coming back to life, so there should be a decent export market awaiting the Malaysian industry when the people emerging from the MCO.

The Yuan

Rich countries that competed over commodities and shipping lines will now fight for control o that rich countries that competed over commodities, and shipping lines will now battle for control of cloud computing and data processing.

China, South Korea, and Japan are on the cusp of transition, making their capital market high ports of entry. And as the supply chains geographically concentrate, the more populated markets in Asia where the too big to fail trade continue to resonate. Admittedly I’m way too early on this trade, but in my view, proximity becomes the next competitive advantage.

But to take this proximity view a step further and in light of the extreme USD dollar funding pressure of late. With China now the largest trading partner for most Asian economies, RMB becomes the natural choice when thinking about alternatives for businesses that have struggled to source dollars as this crisis unfolded.

China’s policy thrust on RMB internationalization has been in play since the big push on Belt and Road initiatives. But with globalization giving way to internalization, there could be a more significant role for the RMB in settling corporate invoicing in Asia. This would be a  welcome respite leaving corporates free from dealing with the arduous and unpredictable task of hedging USD risk. Even more so as proximity trading partners will be the key input to tide the local economies over as they initially see the virus pass.

USD/CAD Daily Forecast – Canadian Dollar Gains Ground On Global Market Optimism

USD/CAD Video 07.04.20.

USD/CAD Moves Lower Amid Broad U.S. Dollar Weakness

USD/CAD breached the 20 EMA level and continues the downside move amid general U.S. dollar weakness against a broad basket of currencies.

The U.S. Dollar Index fell below the 100 level as global markets showed optimism about progress on the virus containment front.

The coronavirus situation remains tense, with as much as 369,069 cases recorded in the U.S., according to the data from Johns Hopkins University. However, it looks like the situation is stabilizing in Spain and Italy, while the hardest-hit U.S. states also show signs of progress.

In current conditions, this is enough for the global markets to have material upside, leading to  weakness of the U.S. dollar which serves as a safe haven asset of last resort.

There were no notable economic releases today which also provided support for the Canadian dollar as bad news are typically bullish for the U.S. dollar in the current environment.

Oil is mostly flat as the market waits for the upcoming negotiations about a major oil production cut, which are set to take place on April 9, 2020.

This date will be very important for USD/CAD since oil price dynamics is a major catalyst for the Canadian dollar, and oil will likely make a big move depending on whether oil production cut negotiations are successful or not.

Technical Analysis

usd cad april 7 2020

USD/CAD breached the low end of the local upside channel to the downside and continues to move lower. In addition, USD/CAD settled below the support level at 20 EMA near 1.4100.

The pair almost reached the next support level near the recent lows at 1.3925. Currently, the combination of downside technical catalysts looks strong enough, an a test of this level may be coming soon.

If the support level at 1.3925 is breached to the downside, USD/CAD will have a chance to get to the next support level at the 50 EMA at 1.3830. The pair will likely need additional broader weakness in the U.S. dollar to make this move.

On the upside, the previous support at 20 EMA became the new resistance level. If this level is breached to the upside, USD/CAD will get back to the previous trading range between 1.4100 and 1.4250.

Silver Price Forecast – Silver Markets Running Into Technical Resistance

Silver markets have rallied quite nicely after breaking out during the previous session, but as you can see the Tuesday candlestick has given back some of the gains. Because of this, I believe that the market is likely to continue to offer a bit of resistance above, and the fact that we pullback where we did make quite a bit of sense considering that the $16 level was right there as well. By giving back the gains, it suggests that we may need to pullback in order to build up enough pressure to go higher, and of course it may be the market starting to step away from the industrial demand part of the equation.

SILVER Video 08.04.20

Remember, silver is not only a precious metal, but it is also an industrial metal, meaning that it has a couple of different things pushing it around at any given moment. Ultimately, I do believe that the market is going to continue to see a lot of volatility, but if the markets continue to focus on the lower coronavirus numbers, one will think that eventually buyers will come back. I would anticipate that $15 level offer a bit of support, so don’t be surprised to see a bit of a bounce in that general vicinity. On the other hand, if we do not hold at the $15 level then I think we are going to go looking towards the $40.50 level, and then eventually the $14 level after that. The market may have gotten a bit ahead of itself, and if that’s going to be the case, pullback makes quite a bit of sense.

Natural Gas Price Forecast – Natural Gas Continues to Rally But on Borrowed Time

Natural gas markets gapped to kick off the trading session to the upside on Tuesday, showing signs of resiliency again. By breaking above the $1.80 level this will have attracted a lot of attention, and of course the 50 day EMA is right there as well. The 50 day EMA tends to be rather important for the natural gas markets, and therefore I think that the rally is about the end. Furthermore, a lot of this will more than likely be based upon the idea of coronavirus numbers coming down, and then perhaps the world going back to work relatively quick. That is something that simply is not going to pan out. Even if the numbers are down permanently, it still a process of getting back to work, not necessarily something that’s going to happen overnight.

NATGAS Video 08.04.20

At this point, the market is still very much in a downtrend, so I don’t wish to fight that, mainly because there is so much in the way of oversupply it’s ridiculous. Beyond that, temperatures are starting to get warmer in the northern hemisphere and of course the coronavirus has demand way down as well. This is essentially a “perfect storm” when it comes to a bearish market, and I think that will continue to be the case going forward. I fade rallies and have no interest whatsoever in buying natural gas anytime soon. As I have stated previously, it’s not until we get a slew of bankruptcies in the space that I would be comfortable starting to buy this market.

Oil Swings Between Gains And Losses Amid Uncertainty Over Production Cut Deal

Oil Video 07.04.2020

Most Likely, U.S. Will Have To Participate In The Production Cut Deal

The key topic of this week is the negotiations about the oil production cut deal. Previously, oil prices surged on hopes that major oil producers would cut production by 10 million barels per day (bpd) but then pulled back when the meeting of OPEC+ countries was postponed from April 6, 2020 to April 9, 2020.

According to various media reports, Saudi Arabia, Russia and other OPEC+ members want the U.S. to cut oil production as well. In addition, countries like Canada and Brazil will most likely have to participate in the deal.

It remains to be seen whether the U.S. will join the production cut deal. Previously, the U.S. signaled that it was ready to impose tariffs on foreign oil if the oil production cut deal did not work out.

U.S. President Donald Trump has recently mentioned that oil production cuts in the U.S. were happening automatically because of low prices but did not elaborate on whether the country was ready to participate in a coordinated action to improve supply/demand balance.

It looks like both Saudi Arabia and Russia are serious about demanding production cuts from U.S as there is zero sense for leading oil producers to cut production if U.S. oil companies do not participate in the deal but profit from improved oil prices.

Saudi Arabia And Russia Try To Determine From Which Level To Cut Production

Russia did not increase its oil production in April because the market was already awash in oil. At the same time, Saudi Arabia followed a different strategy, and increased its oil production levels to gain market share.

Now, both countries are debating whether any upcoming production cut should be based on average first-quarter production levels or on current production levels. Of course, Saudi Arabia wants to cut its oil production from current levels since it has materially increased its oil production right after the previous OPEC+ deal ended at the end of March.

This is another obstacle on the way to an oil production deal. I believe that other countries would not tolerate Saudi Arabia’s plan to base its oil production cuts on current production levels. We’ll see whether Saudi Arabia is serious about this plan, especially given the fact that the U.S. is its important ally. For now, Saudi Arabia’s desire to keep as much oil production as it can serves as a bearish near-term catalyst for oil.

USD/JPY Price Forecast – US Dollar Bouncing Against Yen

The US dollar initially pulled back against the Japanese yen but has found a bit of buying pressure near the ¥108.50 level as it was a previous resistance barrier. At this point, the market is likely to continue to find at least some type of interest, as the market had broken out of a minor consolidation area during the previous session. That being said, the market is still very noisy, and therefore it’s worth paying attention to.

USD/JPY Video 08.04.20

At this point, the market is very likely to take a look at the top of the overall range which is closer to the ¥111 level. The market looks as if there is a significant amount of resistance all the way to the ¥112 level, so I believe that somewhere in that range we should see some exhaustion that the market can take advantage of to go short again. However, if the market was to break above the ¥112 level, then it is likely to continue going much higher, perhaps as high as the ¥115 level. That obviously would be a significant break out and a major “risk on” type of scenario, which at this point I think it might be a bit difficult because the economic damage from the coronavirus will certainly keep a certain amount of risk appetite dampened. Despite the fact that we are getting a nice relief rally with lower numbers, the reality is that we still have plenty of negativity out there but that short-term certainly looks as if the buyers are running the show.