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December 2, 2016

Market overview: OPEC deal and Sterling recovery

Market overview: OPEC deal and Sterling recovery

So we have major updates on the markets which are greatly affecting attitude to risk.

After Trump election US economy is projected to expand as the President pledged to increase fiscal spending (increase budget deficit to finance social, infrastructure and other programs which will spur economic growth and inflation. Gold and Bond markets plummeted while US Dollar grew over 14-year peaks.

On Wednesday OPEC organization announced that members managed to agree on curbing production despite major discord between Saudi Arabia and Iran biggest oil producing countries in OPEC. The decision was quite expected despite many speculations as the countries which economy is based on oil exports have budget program greatly relying on revenue from selling Oil. These countries are Saudi Arabia, Russia Iran, Iraq, Nigeria, Venezuela and others. Market rebalance is essential for pushing prices up and stabilizing those economies.

OPEC agreed to cut production to 32.5B barrels per day the target which were discussed at previous informal meeting in Doha. Russia supported the initiative as well as the energy minister Novak said the country will supply 0.3M less in 2017, although the cuts will be gradual. Many other oil suppliers backed the deal, also it remains unclear how dedicated to their promise will they be. For example Bloomberg analysts raised doubts that the members will stick to their promise based on the previous output cut agreements https://www.bloomberg.com/news/articles/2016-12-01/opec-history-shows-hard-work-on-cuts-deal-is-only-just-beginning.

It’s clear that short-term advance on the energy market will be purely fueled by the optimism. It will take time for the market to feel decreasing supplies and it gets especially tricky to bet on the oil in the long term and pullback in prices is quite possible if sudden disappointment strikes the market. In 1-2 next weeks investors will digest OPEC measure trying to gauge the extent market optimism will drive the prices.

As for today prices added 3 percent – decent jump although, it is definitely hasn’t run out of steam and more bullish play is expected on the next week.  It is going to perfect times to ride on Support and Resistance levels as prices isn’t likely to push through the resistance so easily. Next resistance areas on the WTI (US OIL) is $51.50, 53.00, 55.00 and 60.00 levels. The prices are not on the yearly peaks although $50.00 level is a good area for a take-off taking into account improving world economic conditions. 

screen-shot-2016-12-01-at-11-28-19-pm

 

There are another good news. And its for British Pound. There are speculations that UK will retain access to European single trade market. Considering amount of exports from UK to EU (about 60%), losing European consumers will be a hard blow for UK manufacturers. There are rumors that UK will be forced to pay to EU to save this export channel, although these are only rumors and the Pound has been rallying accordingly – by 1 percent to 1.26 level. 

screen-shot-2016-12-02-at-1-29-48-am

 

Trading Signals:

USOIL – Buy, TP – 55.00, SL – 49.50

GBPJPY – Buy, TP – 146, SL – 142.50

 

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