FX And Oil Week Ahead: The Bears Got Trumped!

| About: The United (USO)

Summary

The end of dovish Fed policy making is near.

Gold severely oversold.

WTI risks to the upside.

Equity and Dollar bears undoubtedly had an unpleasant week, as traders price in more aggressive rate hikes by the Fed in 2017 and pro-growth policies by President elect Trump. Whilst it remains to be seen if Trump's spending policies would indeed push inflation significantly higher and stimulate growth, the likely replacement of Yellen who is due to step down in 2018 is likely signaling an end to dovish monetary policy from the Fed. A light trading week is expected next week with the possibility of sharp moves as always due to lower liquidity.

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
GBP/USD Bearish Bearish Bullish Bullish
GOLD Bullish but weakening Bearish Bearish Bullish Bias being challenged
WTI OIL Bearish but improving Bearish Bullish Bias being challenged Bearish
Click to enlarge

GBP/USD (FXB) Click to enlarge

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: 1.2300/ 1.2210/ 1.2140/ 1.2000/ 1.1930/ 1.1810
Resistance: 1.2460/ 1.2580/ 1.2760/ 1.2870/ 1.2960
*Level to consider buying at for support and selling at for resistance for intra-day trades
Click to enlarge

GBP/USD bears may finally be gaining the upper hand as the pair begins to break down from it's holding pattern. The current target for this move to the downside is 1.2215 before a consolidation.

Trading strategy:

Given the pair is short term oversold, traders can wait for a bounce to the 1.2410 level to start selling the pair with 1.2215 as the target and 1.2500 as the stop loss.

XAU/USD (NYSEARCA:GLD)

Click to enlarge

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: 1205/ 1180/ 1160
Resistance: 1220/ 1245/ 1265/ 1280/1305/1330/1360/1400
*Level to consider buying at for support & selling at for resistance for intra-day trades
Click to enlarge

GOLD has now likely completed it's move to the downside, with 1205 as the key support that needs to hold for bulls to take control again. Given severely oversold conditions in the metal, a bounce is due sooner rather than later at this stage.

Trading strategy:

Medium term traders can look to go long gold between 1205-1210 with a stop at 1180 and profit target at 1280 or higher. From a larger longer term perspective, gold remains in a bullish structure despite the large fall and should continue to rise in the not so distant future.

WTI OIL (USO)

Click to enlarge

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: 42.80/41.30/ 40.00
Resistance: 43.20/ 44.60/ 45.30/ 46.30/ 47.15/ 48.30/ 49/ 49.80/50.20
*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 December 2016 contract.

WTI oil has bounced as expected and should challenge the $48 level at a minimum in the not too distant future. Whether this would lead to a move lower thereafter or a continuation of the longer term bullish trend remains to be seen.

Trading strategy:

Short term traders can play the expected move to $48 on any pullback toward the $44 level with a stop loss at $42. Given that oversold conditions are now worked off in WTI, the risks remains to the upside for the commodity. For more updates throughout the week, plus join our mailing list.

Risk Disclosure:

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Disclosure: I am/we are long USO, GLD.

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.