FX And Oil Week Ahead: Our Focus List To Profit From For The Rest Of The Year

| About: The United (USO)

Summary

NZD remains most overvalued G10 major currency.

SGD remains most overvalued EM currency.

GBP remains most vulnerable to fundamental deterioration.

WTI oil bottom in sight.

This past week has been nothing short of interesting with regards to expectations playing out for us. Our key focus currency, the NZD, saw some real price action in our favour with key statements from the RBNZ and poorer than expected inflation numbers.

For the coming weeks, we will be focusing our efforts on no more than four ideas at a time which we think will have the highest profit potential into the end of the year. We are currently up over 25% this year on our portfolio, and we do not see a need to be heroic at this stage by overdoing our idea list.

Whilst we have no doubt that there are many profitable ideas out there at this time, we prefer to focus our energy and firepower to ideas we think have imminent catalysts that will help us realise value by year-end.

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
NZD/USD Bearish Bullish Bias being challenged Bearish Bias being challenged Bullish Bias being challenged
USD/SGD Bullish Bullish Bullish Bullish
GBP/USD Bearish Bearish Bearish Bearish Bias being challenged
WTI OIL Bearish but improving Bearish Bearish Bearish
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GBP/USD (FXB)

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Key Levels
Support: 1.3190/ 1.3250/ 1.3320/ 1.3480/ 1.3530/ 1.3645
Resistance: 1.3070/ 1.2960/ 1.2870/ 1.2760/ 1.2460
*Level to consider buying at for support and selling at for resistance for intra-day trades
Click to enlarge

The GBP/USD showed signs of life early in the week before a weaker than expected PMI reading led to a sell off in the pair, taking the pair below the 1.3200 figure. We continue to expect the pair to move back toward 1.2860 again before a rebound to set up for the next larger downside move. We think that the continued uncertainty surrounding Brexit will weigh on UK economic data in the coming months which will eventually push the BOE to act to stimulate the economy.

Trading strategy:

We are currently short the GBP/USD from 1.3240, and will be looking to take profit at the 1.2860 level, our current stop loss is the 1.3340 level. We think the BOE will hold back from easing if there is no financial turbulence and Article 50 is not invoked by the August meeting. As such, we are playing on the short side with caution for now. However, we do think that the next rebound that follows after this move down will provide a great short opportunity for a bigger move down.

NZD/USD

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Key Levels
Support: 0.6975/ 0.6875/ 0.6840/ 0.6810/ 0.6780/ 0.6700/ 0.6610/ 0.6500
Resistance: 0.7050/ 0.7100/ 0.7180/ 0.7230/ 0.7300/ 0.7330/ 0.7350/ 0.7400/ 0.7430
*Level to consider buying at for support & selling at for resistance for intra-day trades
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The NZD/USD fell this week after inflation numbers confirmed the deflationary impact a high NZD was having on the economy and the dovish surprise economic update on 21 July 2016 as the RBNZ highlights concerns about the high NZD and puts in place macro prudential measures to curb rising house prices.

Trading strategy:

We bought back our shorts which had an average cost of 0.7215 at 0.7019, and will be looking to re-establish short positions at 0.7010, 0.7030 and 0.7100. We continue to believe that the RBNZ will cut at the August meeting and will guide towards at least 2-3 further rate cuts thereafter. We continue to expect the currency to fall to 0.6900 and lower next week, with an eventual target around the 0.6300 level and lower.

USD/SGD Click to enlarge

Key Levels
Support: 1.3540/ 1.3480/ 1.3395/ 1.3320/ 1.3260/ 1.3150/ 1.3040
Resistance: 1.3630/ 1.3720/ 1.3850
*Level to consider buying at for support and selling at for resistance for intra-day trades
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The USD/SGD remains our favourite trade in the EM FX space, with the Singapore dollar severely overvalued in our opinion. We think that the MAS will ease in the October meeting, and we expect rates to move back above the 1.4500 level. We had earlier published about the Singapore dollar idea here.

Trading strategy:

We will consider buying dips toward the 1.3460, 1.3395 and 1.3320 level with a stop loss at the 1.3150 level. Our first target to the upside is the 1.3850 level followed by 1.4000 and 1.4500 thereafter.

WTI OIL (USO)

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Key Levels
Support: 43.20/ 42.80/ 41.90/ 40.00
Resistance: 44.60/ 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
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*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 and hold for a medium-term long trade in WTI oil.

Trading strategy:

We are looking to go long WTI at the $43.20/40 level on Monday or Tuesday. We think the correction in WTI is nearing an end and that we should see rally taking out $55 in the not too distant future. We will consider the trade at risk if $40 breaks to the downside.

Risk Disclosure:

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.