FX And Oil Week Ahead: Trump, China And The Dollar

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Includes: BNO, DBO, DGL, DGLD, DGP, DGZ, DNO, DRR, DTO, DWT, DZZ, ERO, EUFX, EUO, FXB, FXE, GBB, GEUR, GHE, GHS, GLD, GLDI, GLDW, GLL, GTU, GYEN, IAU, OIL, OILK, OILX, OLEM, OLO, OUNZ, PHYS, QGLDX, SCO, SGOL, SZO, UBG, UCO, UDN, UGL, UGLD, ULE, URR, USDU, USL, USO, UUP, UWT
by: The Market Master

Summary

Dollar momentum remains poor in the short term, but bullish in the medium to long term.

Gold now has a clear target to the upside.

WTI is on the verge of breaking out over the $55 in the not too distant future.

President Trump undoubtedly gave market participants a lot of news to digest. The pleasant surprise was the attempt to mend ties with China after Trump stated on his call with Chinese Premier Xi Jin Ping that he would recognize the 'One China' policy. The other key piece of news was the expected 'spectacular' tax bill which would be released in the coming weeks.

Market participants will be watching Yellen's speech this coming week for clues on Fed policy, especially her expectations of how Trump's policies may affect inflation data. We remain bullish on the greenback over the longer term, and expect the tax cuts and fiscal policy announcements to be in favor of further greenback strength.

Trading and Technical Strategy for the week ahead:

Dollar Index, DXY (UUP, USDU, UDN, FXE, FXB )

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: 99.68/ 98.40/ 97.12
Resistance: 101.10/ 104/104.50/ 105.25/ 106
*Level to consider buying at for support and selling at for resistance for intra-day trades

The USD rise so far has been anemic, which now puts dollar bulls at risk of another sell off. Given the current scenario, we expect the USD to continue rising into next week, but not take off to new highs above 104 as initially expected. Thereafter, we expect a move back lower toward the 97.31 level to complete this consolidation before the next rise to levels above 104.

Trading strategy:

We think that downside in the EUR/USD remains limited in the short term, and as such we continue to prefer going long the USD via shorting the AUD/USD at levels closer to 0.7720, with a stop loss at 0.7810. Our target for the AUD/USD remains at the 0.7500 level and lower.

XAU/USD (NYSEARCA:GLD)

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: 1205/ 1170/ 1130/ *1100/ 1050
Resistance: 1245/1265/1280/1305/1330/1360/1400
*Level to consider buying at for support & selling at for resistance for intra-day trades

GOLD remains on track to move toward the 1277 eventual target for this move off the 1122.51 low back in December. Given the weak momentum in the dollar, we think this upside target will be met over the next two to three weeks.

Trading strategy:

We think momentum traders can consider long positions around the 1220 level, with a tight stop at the 1204 level, targeting 1277 to the upside. Longer term traders may want to wait for 1277 to establish short positions in the metal, to play for the expected larger downside move thereafter.

WTI OIL (USO)

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: 53.80/ 52.60/ 51.30/ 50.20/ 49.80/ 49/ 48.30/47.15/ 46.30/ 45.30
Resistance: 55/ 56.20/ 57/ 58.50
*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 March 2017 contract.

WTI oil price action suggests the commodity remains in a complex consolidation, and that one more move to the downside should be seen in the coming week or two. Thereafter, we expect WTI to move higher again past the $55 level. $50.70 remains the key support to the downside WTI must stay over, in order for the technicals to remain bullish.

Trading strategy:

We think traders should wait for a pullback to around $51.80 to take a long position with a stop at $50.70 and a target of $55 and higher to the upside. Given the current member adherence to the OPEC cuts, we do think that the next move up for WTI should see the commodity closer to $60, before the next consolidation. For updates throughout the week, please join our mailing list.

Risk Disclosure:

High Risk Warning: Foreign exchange, futures and ETF trading carries a high level of risk that may not be suitable for all investors. Leverage creates additional risk and loss exposure. Before you decide to trade any instrument, carefully consider your investment objectives, experience level, and risk tolerance. You could lose some or all of your initial investment; do not invest money that you cannot afford to lose. Educate yourself on the risks associated with trading, and seek advice from an independent financial or tax advisor if you have any questions.

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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.

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