FX And Oil Week Ahead: Will The Pound Get Pounded?

|
Includes: FXB, FXE, GLD, OB, UDN, USDU, USO, UUP
by: The Market Master

Summary

More near-term USD downside likely for now.

The pound will likely suffer in the coming months. Key risk at hand is a Scottish referendum.

WTI is in a very precarious position at this juncture.

With Article 50 officially triggered, the long difficult negotiation process for Britain's exit from the EU begins. Whilst the reaction to the triggering of Article 50 is pretty calm for now, we think that the markets have not priced in a Scottish independent Referendum vote at this juncture. Any sign that another independent referendum will be called, will likely lead to significant downside price action in the pound.

On the economic data front next week, we have the non-farm payroll numbers again, which will be the likely highlight for the week. Expectations for a 180k will likely be met given the current jobless claims trend, with the focus once again on wage growth.

Markets Technical Sentiment:
Instrument Fundamentals Short-term bias (1-3 days) 4 hourly timeframe Medium-term trend (1wk-3mths) Daily timeframe Long-term trend (>3mths) Weekly Timeframe
DXY (Dollar Index) Bullish Bullish (SOB) Bullish Bearish Bias being challenged
GOLD Bearish Bullish Bearish Bullish
WTI OIL Bullish Bullish (SOB) Bullish (NYSE:OB) Bearish Bias being challenged (OS)

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 continues to struggle and consolidate in the short term, and will likely see the 97.64 level tested before the next big move up into year end. The key level to the downside at this juncture is the 99 level, which if broken should see the DXY move to the 97.64 target.

Trading strategy:

Given the technical weakness in the DXY, the EUR/USD may be a long candidate around the 1.0620 level, with 1.0500 the key level for the EUR/USD to stay over. Upside targets are around the 1.0970 level at this juncture, if the EUR/USD can stay above 1.0500.

GBP/USD (NYSE:FXB)

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: 1.2500/ 1.2460/ 1.2380/ 1.2300
Resistance: 1.2590/ 1.2610/ 1.2720/ 1.2800
*Level to consider buying at for support & selling at for resistance for intra-day trades

Whilst dollar weakness into next week is likely given the technicals, we think that cable remains an opportune short candidate at around current levels, as Brexit talks commence. Given the EU will likely want to discourage other member states from holding a similar referendum, it is likely that the tone the EU will take with the UK will be harsh. This, coupled with the likelihood of a Scottish independence vote, will likely weigh on the pound further in the coming weeks and months.

Trading strategy:

For medium-term trader, we would take a short position around current levels, with a stop loss at the 1.2590 level, looking for a test of the 1.2120 level to the downside in the coming weeks.

XAU/USD (NYSEARCA:GLD)

Charts created by themarketjournal, data provided by SAXO markets

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

GOLD managed to put the bearish downtrend in doubt this past week, after closing over 1250. However, the technical formation remains suggestive of a double top formation in gold, which may see the yellow metal head lower in the coming sessions, if 1260.50 is not broken to the upside.

Trading strategy:

Short-term traders can take short positions in gold at current levels, with a stop loss at the 1260.50 level. Immediate targets to the downside are the 1210 level followed by the 1180 level.

WTI OIL (USO)

Charts created by themarketjournal, data provided by SAXO markets

Key Levels
Support: 50.20 / 49.80/ 49/ 48.30/47.15/ 46.30/ 45.30
Resistance: 51.30/ 52.60/ 53.80/ 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 May 2017 contract.

WTI oil is currently in a very precarious setup, with the next week a likely determining factor from a technical standpoint, how far down WTI will head next. The $47.10 level remains key for WTI, and a break of this level on the pullback next week will likely signal prices close to $40 and lower ahead.

Trading strategy:

We think it is better to stand aside for now in the WTI market, to see how this next consolidation goes first before taking positions. However, aggressive traders can consider selling at current levels with a stop at the 53.50 level, and an open target to the downside. For more 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.

Advisory Warning: THEMARKETJOURNAL provides references and links to selected blogs and other sources of economic and market information as an educational or informational service to its clients and prospects and does not endorse the opinions or recommendations of the blogs or other sources of information. Clients and prospects are advised to carefully consider the opinions and analysis offered in the blogs or other information sources in the context of the client or prospect's individual analysis and decision making. None of the blogs or other sources of information is to be considered as constituting a track record. Past performance is no guarantee of future results and THEMARKETJOURNAL specifically advises clients and prospects to carefully review all claims and representations made by advisors, bloggers, money managers and system vendors before investing any funds or opening an account with any brokerages or dealers. Any news, opinions, research, data, or other information contained within this article and our website is provided as general market commentary and does not constitute investment or trading advice.

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.