|Asset||Current Value||Weekly Change|
|WTI Crude Oil||44.68||-2.24%|
Central banks and cryptocurrencies stole the show this week, as the Bank of England, The Bank of Japan, the SNB, and most importantly, the Federal Reserve all held their monetary meetings, while the coins went through a major correction that shook the dominance of Bitcoin. The banks sent unusually mixed signals, with the Fed alone causing confusing reactions in the different assets classes. The BOE also shocked the market with a very hawkish vote, while the BOJ reacted to the recent strength of the Yen in the only way that it possibly could, reiterating its uber-easy policies
Donald Trump continues to be under fire regarding his campaign’s Russian ties, but the market more or less ignores the scandal, even given the heavy media concentration. The flash-crash of the big tech names last Friday is something that is still making waves, as the NASDAQ remains technically wounded, and that could drag down global stocks in the coming week, despite the proximity of the all-time highs. The other major markets were generally flat, with the Japanese Nikkei outperforming in the second half of the week, as the Yen got weaker.
The Dollar’s rebound was all the rage in the fiat-currency world, although the Greenback ended the week on a negative note following the notoriously coming misses in the US economic indicators. Oil led the way lower for commodities lately, and the WTI contract is currently below $45 per barrel, while gold fell to $1250 and industrial commodities also remained under pressure.
WTI Crude Oil, 4-Hour Chart Analysis
-30%. Almost all major coins registered losses near or above that level this week, and although most of them are back way higher, the shadow of the correction is still on the market and on traders. Bitcoin triggered the broad sell-off, although Ethereum was also ripe for a deeper decline according to the long-term picture. Our pick Litecoin emerged strongly from the move lower, as it catapulted to new all-time highs today, hitting our trading target in the process. Ethereum rebounded by $100 or 40% in two days, and it sits 10% below its all-time highs, with BTC being down by 15%. Ripple, NEM, and Monero are the current laggards, while Dash and Ethereum Classic are holding on above their break-out levels from last weekend. The total value of the coin market is also back above the $110 billion level after falling below the $100 billion mark.
Litecoin, 4-Hour Chart Analysis
Economic releases were negative concerning most of the major countries once again, with the US indicators disappointing across the board. The CPI index and retail sales both missed by a mile, and although the Fed remained hawkish in the face of the deterioration, the bond market tells a different story, with US yield hitting a seven-month low during the week. Australia and Canada delivered some good numbers, with the Employment Report and Manufacturing Sales surprising on the upside respectively. European indicators were mixed, with the UK showing weakness (retail sales, employment) and the Eurozone inflation finally matching expectations.
NASDAQ 100 Futures, 4-hour Chart Analysis
The NASDAQ remained in the centre of attention this week, after the tech giants flash-crashed on last Friday, which caused nervous trading throughout the period, even as central banks took centre stage. The benchmark also finished the week on a negative note, following the announcement of the acquisition of Whole Foods by Amazon. The index finished near the recent lows, and it might be ready to hit new short-term lows next week, and test the long-term trendline near 5600.
Key Economic Releases of the Week
|Monday||US||Federal Budget Balance||-88.4 bill||182.4 bill||182.4 bill|
|Tuesday||AUSTRALIA||NAB Business Confidence||7||–||13|
|Tuesday||GERMANY||Zew Economic Sentiment||18.6||21.8||20.6|
|Wednesday||US||Core Retail Sales||-0.3%||0.2%||0.3%|
|Wednesday||US||Crude Oil Inventories||-1.7 mill||-2.3 mill||3.3 mill|
|Wednesday||US||Fed Interest Rate Decision||1.25%||1.25%||1%|
|Wednesday||US||Fed Monetary Statement||–||–||–|
|Wednesday||EUROZONE||ECB Monetary Statement||–||–||–|
|Thursday||SWITZERLAND||SNB Monetary Statement||–||–||–|
|Thursday||UK||BOE Monetary Statement||–||–||–|
|Thursday||US||Philly Fed Index||27.6||25.5||38.8|
|Thursday||US||Initial Jobless Claims||237,000||241,000||245,000|
|Friday||US||Building Permits||1.17 mill||1.25 mill||1.23 mill|
|Friday||US||Housing Starts||1.09 mill||1.23 mill||1.17 mill|
|Friday||US||Prelim Consumer Sentiment||94.5||97.2||97.1|
Featured Image from Shutterstock
Will Crude Oil Reach $68 a Barrel in 2016?
Crude oil prices are likely to climb close to $68 per barrel mark in 2018. We believe that oil supply will be hit due to a few geopolitical issues if they play out as we expect. Additionally, though high crude prices will be a strong incentive for the shale oil drillers to pump more, their increase is unlikely to tilt the deficit into oversupply.
- The OPEC production cut is tilting the crude oil markets to a balance
- Rise in the shale oil production is unlikely to equal the increase in demand in 2018
- The geopolitical issues can tilt the markets into a deficit
- If crude oil breaks out of $55 per barrel, a move to $68 is likely
What are the current market conditions?
OPEC oil production cuts
The November 2016 production cut by OPEC and its allies is helping the market stabilize. The US crude stockpiles have been decreasing over the past few months, which indicates that the OPEC cuts are having their desired effect, albeit slowly.
The stockpiles in the Organisation for Economic Co-operation and Development (OECD) nations is down to just under 3 billion barrels, which is roughly 171 million barrels above the 5-year average. The OPEC wants to bring the inventory levels below the 5-year average.
Reports suggest that the OPEC and its allies will extend the deal, which is set to expire in March 2018 by another 9-months. However, the oil cartel is unlikely to deepen the cuts. In the September quarter, it had produced 32.9 million barrels per day (bpd), as against 33.4 million bpd production in November 2016, prior to the production cut agreement.
In the fourth quarter of this year, the OPEC production is expected to further decline to 32.7 million bpd.
US shale oil production
The main threat to any recovery in crude oil prices is the ever-increasing production of the US shale oil drillers. US crude oil production, which averaged about 9.2 million bpd in the first quarter of this year has increased to 9.56 million bpd by the third-quarter.
The US Energy Information Administration (EIA) expects the average US crude oil production to increase to 9.9 million bpd in 2018, compared to 9.2 million bpd in 2017. That is an addition of 700,000 bpd of supply.
On the other hand, Investment bank Tudor, Pickering, Holt & Co (TPH) expects US crude oil production to reach 10.2 million barrels in 2018.
So, on an average, crude oil production by the shale oil drillers is expected to increase by 700,000 bpd to 1 million bpd.
Demand increase in 2018
The global economy is growing at a decent pace, which is expected to increase the demand for crude oil. The US EIA expects the global demand to increase by 1.6 million bpd in 2018.
Therefore, with everything else being equal, this will lead to a faster reduction in crude oil inventory and an improvement in sentiment, but not a large increase in price.
So, why do we expect crude oil prices to increase next year?
What are the events that have changed in the recent past that warrant a change in our view?
For the past two years, oil prices have not responded to geopolitical tensions because of the supply glut.
However, next year, when the markets are in a balance, any geopolitical event that can have an effect on the supply side will tilt the market to a deficit, resulting in a rally in oil prices. What are these events?
The Iran sanctions
President Donald Trump has been a critic of the deal between the US and Iran, which led to lifting of sanctions on the Islamic nation. The deal is called the Joint Comprehensive Plan of Action (JCPOA). As a result of this deal, Iran was able to resume its exports, which have skyrocketed from about 1 million bpd in 2013 to about 2.3 million bpd in September 2017.
President Trump decertified the deal on October 13 but has still not quit the deal. He wants the deal to be renegotiated, however, the remaining countries who were party to the deal and Iran are unwilling to do so.
This creates a tension between the US and Iran. Chances are that President Trump will withdraw from the deal sometime next year to fulfill his pre-election promise of ripping the deal apart.
What are the repercussions if the US quits the deal?
Presently, the EU nations are not in favor of scrapping the deal with Iran. If the US unilaterally withdraws from the deal, Iran’s exports are unlikely to have an immediate effect, until the EU decides to support it. After all, EU has been the major consumer of Iranian oil since sanctions were lifted.
However, Iran’s fields are aging. They need fresh investments to keep the oil flowing at the current rate. If the US quits the deal, it is unlikely that major oil companies, that have operations in the US will enter Iran. This can limit the capital flows to the Islamic nation’s oil sector.
As an immediate effect, the US sanctions will “put at risk a few hundred thousand barrels of Iranian exports,” Goldman Sachs wrote in a research note. However, these are only estimates and the real impact will be known only after the US withdraws from the deal. Due to the uncertainty, the markets are likely to boost prices higher, until it gets a clear picture of the effects.
Geopolitical tensions in the gulf can lead to a severe shortage of oil
The northern Iraq region – Kurdistan – is a semi-autonomous region, which recently declared Independence from Iraq. This has led to a conflict between the two. While the Iraqi forces have declared their victory in the important oil-rich region of Kirkuk, the victory is not final because the Kurdish army did not put up a fight initially to defend the oil-rich region.
However, both the Kurdish peshmerga and the Iraqi army have been trained by the US. Therefore, if the conflict is not resolved quickly, through a dialogue, it can turn bloody and lead to disruption of about 600,000 bpd of oil supply.
“Oil prices could spike a lot higher on this development because this time is different, after years of war in the region. The battle, finally, is for the oil, and no other reason. In other words, here we go,” John Kilduff, partner at energy-focused investment manager Again Capital, told CNBC.
Unless a permanent solution is reached, we expect these issues to linger on and again crop up in 2018, propping prices higher.
What does the chart forecast?
The WTI crude has been broadly trading in a range of $42 and $55. Oil has taken support close to the $42 levels four times in the past year and a half. Therefore, this is a strong support level and can be used as a stop loss for our positions.
On the upside, the zone between $50 and $55 has been a strong resistance. Oil has struggled to breakout of this zone. However, if any geopolitical event triggers a breakout above $55, a rally to $68 levels is likely, which is the minimum target objective of a breakout from the range.
How can we benefit, if crude rallies according to our expectations?
The best way to benefit from the rise in crude oil is to trade the oil futures, but due to their volatility, it is not advisable to hold it for the long-term.
The oil-based ETFs can offer an opportunity to take a position in oil. Individual energy stocks are also another means of benefitting from a rally in crude oil.
We shall soon identify the best oil-based ETF and stocks that can offer good returns in 2018.
Risk to our analysis
Our analysis is based on the assumption that the existing geopolitical issues are unlikely to be sorted out within the next year. However, a good dialogue can easily put an end to these, thereby invalidating any risk-premium to crude oil.
Also, consistent high prices above $50 can increase the US shale oil production, much higher than the currently anticipated levels. This will prevent the markets from balancing out.
Due to infighting among its members, the OPEC and its allies can opt out of the production cut deal, which will boost supply and can lead to a crash in crude oil prices.
Featured image courtesy of Shutterstock.
Daily Analysis: Stocks Shoot for the Moon as Senate Passes Budget
Friday Market Recap
|Asset||Current Value||Daily Change|
|WTI Crude Oil||51.60||0.25%|
Financial markets got very active today thanks to the US Senate’s decision to pass the 2018 budget, paving the way for the tax reform plan that’s been welcomed by investors in recent weeks. The Dollar, equities, and Treasury yields all got substantially higher with the Dow and the S&P 500 scoring yet another all-time high. The NASDAQ and the Russell 2000 failed to follow the former benchmarks to record highs, but the short-term rally is still definitely intact, despite the overbought readings and the overvaluation issues.
Dow 30, Daily Chart Analysis
Forex markets were also very active as the Dollar cruised higher against all of its major counterparts, with the exception of the Great British Pound that rebounded strongly after the optimistic words of Angela Merkel regarding the Brexit process. The New Zealand Dollar continued yesterday’s negative trend, while the Canadian Dollar was also hit hard amid the early decline in the price of oil and the negative economic surprises from the country.
Gold is down yet again, as it failed to reclaim the $1300 level amid the improved global sentiment that also weighed on the Japanese Yen as well. The Yen’s weakness helped the Nikkei to another two-decade high, as the USD/JPY pair surged to 113.50 for the first time since July.
USD/JPY, 4-Hour Chart Analysis
Bitcoin’s new all-time high made headlines in the segment today, as the most valuable coin surged past $6000 for the first time ever, even as the currency traded as low as $5100 just a few days ago. BTC also reached $100 billion in market cap, and the coin accounts for more than 57% of the total value of the crypto segment.
The other majors are virtually unchanged despite Bitcoin’s rise, with only IOTA losing significant ground and Ripple trading in a volatile fashion after its crazy week. Litecoin and Monero also performed relatively well, while Ethereum got stuck below the $315 line yet again, and NEO finally settled down, although it continues to trade below the crucial $30 level.
BTC/USD, 4-Hour Chart Analysis
Key Economic Releases on Friday
|14:30||CANADA||Core Retail Sales||-0.7%||0.3%||0.2%|
|16:00||US||Existing Home Sales||5.39 mill||5.32 mill||5.35 mill|
Key Economic Releases on Monday
Featured image from Shutterstock
Cryptocurrency Analysis: Bitcoin Tests $6000 as Market Settles Down
Bitcoin is in the center of attention yet again, as the most valuable coin is knocking on the door of the $100 billion level in market capitalization. The coin touched our long-term target at $6000 on several exchanges, but it’s now trading slightly below the historic level.
While the rest of the market is quiet, BTC is very active, and it could be in for a volatile weekend, as despite the long-term overbought readings, the short-term uptrend is clearly intact. That said, investors should avoid opening new positions here, and consider lowering their exposure further, while traders should only trade with smaller than usual sizes. Support levels are found at $5400, $5000, and near the $4650 level.
BTC/USD, 4-Hour Chart Analysis
As the rest of the majors are still recovering from the recent correction, the total value of the segment is below its all-time high, with BTC’s dominance now standing at 57%. Most of the largest coins are little changed, with Monero and Liteocin showing considerable strength and IOTA still being the weakest of the majors. With all attention on BTC let’s see how the most traded altcoins look before the weekend.
- Bitcoin Hits $100 Billion as Record Rally Continues October 21, 2017
- Will Crude Oil Reach $68 a Barrel in 2016? October 21, 2017
- Daily Analysis: Stocks Shoot for the Moon as Senate Passes Budget October 20, 2017
- Cryptocurrency Analysis: Bitcoin Tests $6000 as Market Settles Down October 20, 2017
- Trade Recommendation: Ethereum October 20, 2017
- Bitcoin Cash Consolidates as Markets Search for Direction October 20, 2017
- Trade Recommendation: GBPJPY October 20, 2017
- Gold Still Beats Bitcoin, According to Goldman Sachs… But What About Price Independence? October 20, 2017
- Asian Market Update – Friday: Asian stocks surged from negative territory to post minor gains on US tax reform hopes October 20, 2017
- ICO Analysis: Lydian October 20, 2017
A part of CCN
Analysis1 week ago
Analysis: Bitcoin Price at $5200, How Much is There Left in the Tank?
Analysis1 week ago
Technical Analysis: Ethereum, Monero, and Litecoin Jump as Bitcoin Goes Parabolic
Analysis5 days ago
5 Things to Watch Next Week: Byzantium, Bitcoin Stretched, Gold’s Strength, The Next Fed Chair, Kirkuk and Crude Oil
ICO6 days ago
ICO Analysis: UTRUST
Cryptocurrencies1 week ago
Trade Recommendation: Monero
ICO1 week ago
ICO Analysis: Request Network
Analysis1 week ago
Technical Analysis: Litecoin Follows Bitcoin Higher as Market Tops $165 billion
Cryptocurrencies5 days ago
Trade Recommendation: Stellar