FX And Oil Week Ahead: A Strong NFP But A Weak Greenback?

| About: SPDR Gold (GLD)

Summary

At least one more USD rally likely this year.

EUR and GBP remain weak and will likely weaken further.

High yield currencies like the AUD and NZD remain strong for now, but are unlikely to remain so into year-end.

Gold and oil likely to bottom together and rise together over the coming sessions.

To say that Non-Farm payrolls beat as we predicted last week is an understatement, with the headline number smashing expectations with a 287k read. What caught us off guard though was the market reaction to the blowout numbers, with the greenback getting sold off following the release of the numbers with numerous reasons such as the downward revisions to last month's payroll numbers being cited.

We continue to believe that the selling of the USD due to dovish expectations being priced in are overdone, and that at least one more rally in the greenback will be seen this year. Likely reasons for a move up in the greenback include safe haven buying, together with rate expectations being repriced.

Next week looks fairly light on the economic calendar for the currencies being featured, with China having the heaviest data flow next week. U.S. CPI numbers will also be monitored closely for signs of inflation, which could lead to rate hike expectations being repriced.

Trading and Technical Strategy for the week ahead:

Instrument Fundamentals Short-term bias (1-3 days) 4 hourly time frame Medium-term trend (1wk-3mths) Daily time frame Long-term trend (>3mths) Weekly time frame
EUR/USD Bearish Bullish Bearish Bullish Bias being challenged
NZD/USD Bearish but improving Bullish Bullish Bullish
GOLD Bullish Bullish Bullish Bias being challenged Bullish
WTI OIL Bearish but improving Bearish Bias being challenged Bearish Bearish
Click to enlarge

EUR/USD (FXE) Click to enlarge

Key Levels
Support: 1.1040/ 1.0970/ 1.0930/ 1.0810
Resistance: 1.1095/ 1.1110/ 1.1160 1.1240/ 1.1280/ 1.1320/ 1.1360/ 1.1420/ 1.1470
*Level to consider buying at for support and selling at for resistance for intra-day trades
Click to enlarge

The EUR/USD has now decidedly broken out to the downside and we expect momentum to continue to the downside despite USD selling on Friday unless 1.1191 is broken to the upside.

Trading strategy:

We covered our short from 1.1120 and our added short at 1.1105 and 1.1062 ahead of the Non-Farm Payroll numbers. We will be looking to re-enter these short positions at around 1.1105/10 with a stop at 1.1191 to continue trading for the longer term downside targets of 1.0910 and 1.0760.

NZD/USD

Click to enlarge

Key Levels
Support: 0.7300 / 0.7230/ 0.7180/ 0.7100 0.7050/ 0.6975/ 0.6875/ 0.6840/ 0.6810/ 0.6780
Resistance: 0.7330/ 0.7350/ 0.7400/ 0.7500
*Level to consider buying at for support & selling at for resistance for intra-day trades
Click to enlarge

The NZD/USD fell at the start of the week, but quickly retraced losses following comments made by RBNZ Governor Spencer that further OCR cuts might risk financial stability due to rapidly rising house prices. We continue to remain baffled by how long the RBNZ is taking to instill the macro prudential measures to curb housing prices, given that Prime Minister John Key is obviously worried about it. The high NZD continues to have a deflationary impact on the economy, with exports likely to continue suffering on the back of a high NZD, and we think that the RBNZ will have to eventually continue OCR cuts sooner rather than later.

Trading strategy:

We are currently short the NZD/USD from 0.7145 and have added shorts at 0.7215 and 0.7280. We continue to believe that the NZD remains severely overvalued, and that a move to levels below 0.6900 will come sooner rather than later. For now, we will add to shorts at 0.7350 and 0.7430 given how overbought the pair is from a technical perspective.

GOLD (NYSEARCA:GLD)

Click to enlarge

Key Levels
Support: 1330/ 1305/ 1285/ 1246/ 1241.50/ 1212/ 1200/ 1150/1110
Resistance: 1400/ 1440/ 1500/ 1560
*Level to consider buying at for support and selling at for resistance for intra-day trades
Click to enlarge

Gold rose past our first target at 1,360 but came short of our 1,400 target ahead of the Non-Farm payroll numbers. We think that gold will now consolidate at either 1,330 or 1,300 before attempting another move to the upside to challenge the 1,400 level. Bullish momentum will likely continue until 1,260 breaks to the downside.

Trading strategy:

Gold moved up early in the week faster than expected, and as such we were unable to catch the move to the upside. We are looking to initiate longs at 1,300 with a stop loss at 1,260 to play for a move to 1,400 and higher to the upside.

WTI OIL (USO)

Click to enlarge

Key Levels
Support: 44.60/43.10/ 42.80/ 41.90/ 40.00
Resistance: 45.60/ 46/ 48.30/ 47.15/ 49/ 49.80/ 50.20/ 51/ 52/ 52.50
*Level to consider buying at for support & selling at for resistance for intra-day trades
Click to enlarge

*Note on our price chart: Before we dive into the WTI technical analysis, we have decided to use the WTI continuous futures price as a chart instead of the original spot price posted in our article. This price will match the nearest dated WTI crude futures contract which will switch automatically once the contract settles, moving on to track the next nearest dated futures contract. We will also be only analyzing the technical aspect of the WTI price, given the fundamental aspect of WTI oil is well covered by many subject matter experts in the energy commodities section. At this time, the nearest dated futures contract being tracked by the above price chart is the August 2016 contract.

WTI oil continued to fall this week according to expectations. The path to $43.20/40 remains intact, and we anticipate this level to be tested over the next few sessions.

Trading strategy:

We were unable to short WTI before it moved down, and as such will now be awaiting WTI to reach $43.20/40 where we intend to go long to play for upside in WTI. We will cut half the position if $41.80 breaks to the downside and the rest if $40 gives way.

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