FX And Oil Week Ahead: A Break Before Christmas?

| About: The United (USO)
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Summary

Miss in average hourly earnings takes wind out of strong jobs report.

Italian referendum weighs on the EUR and could cause risk sentiment to turn.

Make or break week for gold.

The S&P500 finally took a break from it's unstoppable rally as risk on sentiment takes a break from overbought conditions. The main highlight this past week were the agreed OPEC cuts and the U.S. employment numbers. Whilst the headline numbers missed slightly, the main concern was in the average hourly earnings failing to show any significant wage increase. This took the wind out of an otherwise strong employment report.

This next week, markets will be watching the outcome of the Italian referendum, the result of which could lead to the start of political upheaval in the country and Italy's position in the Eurozone being questioned if PM Renzi resigns. Other than this, key U.S. data next week includes the non-manufacturing PMI number.

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 Bullish Bullish Bullish
GOLD Bullish but weakening Bullish Bearish Bearish Bias being challenged
WTI OIL Bullish Bullish Bullish Bullish

GBP/USD (FXB)

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: 1.2560/ 1.2460/1.2300/ 1.2210/ 1.2140/ 1.2000/ 1.1930/ 1.1810
Resistance: 1.2760/ 1.2870/ 1.2960
*Level to consider buying at for support and selling at for resistance for intra-day trades

GBP/USD has now invalidated bearish pressures and should head towards 1.3000 in the not too distant future after a short term consolidation break before the likely next move to the upside.

Trading strategy:

We think traders should wait for the consolidation to look for long positions in the pair. Ideal levels to consider long positions would be around the 1.2460 level. We will update when a good setup shows itself.

XAU/USD (NYSEARCA:GLD)

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: *1170/ *1130
Resistance: 1205/ 1220/ 1245/ 1265/ 1280/1305/1330/1360/1400
*Level to consider buying at for support & selling at for resistance for intra-day trades

GOLD remains extremely oversold to the downside with 1,170 likely to remain key support for gold at this juncture. However, the bulls are running out of time to prove their case, and a move higher this coming week will be needed to remove bearish pressures. A failure to move higher this next week will likely result in gold breaking below the key 1170 support.

Trading strategy:

Medium-term traders can look to go long gold closer to 1,170 with a stop loss at 1,150. The medium term target to the upside will be 1,230/60. Thereafter, whether gold continues its bullish momentum or has further downside will depend on how the consolidation plays out.

WTI OIL (USO)

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: 51.30/ 50.20/ 49.80/ 49/ 48.30/47.15/ 46.30/ 45.30/ 44.60/ 43.20
Resistance: 52.60/ 53.80/ 55
*Level to consider buying at for support & selling at for resistance for intra-day trades

*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 January 2017 contract.

WTI oil spiked on news of production cuts being agreed to by OPEC. WTI has now reached upper resistance which will prove tough to crack in the short term, with a consolidation expected. However, we do expect bullish momentum now to continue toward $60 after the next consolidation barring any unexpected risk off outcomes.

Trading strategy:

"WTI traders can look to go long at current levels, with a very tight stop at $45.50. A break of $45.50 will likely lead to bears gaining control and the trade bias turning from long to short. The target to the upside would be $49.20 and higher if the bulls have their way."

Traders who went long last week should consider selling longs in the short term, and waiting for the coming pullback to re-establish longs again. We will update on our site when we think a more ideal setup for going long shows itself.

Risk Disclosure:

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Disclosure: I am/we are long 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.