Currencies
EUR/USD – with the recent strength in the USD, some are saying that we can see parity again. We heard this also last year and this didn’t happen, and we are still quite far off at the moment as well. In case growth in the Eurozone remains on track according to the ECB, they might not extend QE and this would be beneficial for the EUR and in that case it would be hard to see parity happen. That is a lot of ifs at the moment, but we should know more next month when the ECB comes together again.
USD/JPY – has reached the first resistance level above the 109 level and was unable to break through (yet). With such a sharp, almost uninterrupted rise of well over 800 pips, a correction is to be expected, the main question is when and how sharp a correction we will see.
GBP/USD – moved further down, especially after the data out of the UK was surprisingly worse than expected. Many expected inflation to pick up due to the weak GBP, but this was not the case. However, when a UK judge said that Brexit could be postponed by 2 years, the GBP moved up and we see the continuation of this at the moment. In addition the USD is losing some of its strength. We have more data out of the UK as well as the US today, so the calendar is still something to watch.
USD/MXN – a week after Trump has been chosen as the next President of the United States we can see the pair correct a bit down. We will see if we will be stopped by one of the Fibonacci levels.
Indices
Dollar Index – it looks like the run of the USD is nearing its end as the 100 level appears to be the limit at the moment. That wouldn’t be so strange if we look at the sharp rise over the last week or so, especially if we realize that a break above 100.665 would mean the highest level since April 2003! However, with the strong data out of the US, the likelihood for a rate hike by the FED next month have risen to over 90%.
S&P 500 – after battling a long time with the resistance it was able to break through near the end of the day buoyed by the energy sector. We will wait to see if it will be able to remain above this level as each previous time we traded here, we dropped fairly quickly below the support/resistance.
Commodities
Gold – is slowly moving up and away from the resistance/support around the 1224 level, but the next resistance isn’t far away and is around the 1240 level. The USD is still strong, although it looks like the rally is running out of steam. Perhaps that the data out of the US will be able to give it one more push, but it could be that we will see a correction in the USD, which should help gold move further up a bit.
Oil – saw a strong move up yesterday, as the reports that Saudi Arabia is trying to bring the sides together was enough for renewed hopes for a deal to be reached. The new OPEC secretary general also said that OPEC is together in this and all countries are working together to reach an agreement. Russia has also indicated that it will be joining some informal talks, fueling hopes further. However, we must look at the facts as well.
Since the Algiers agreement, OPEC has been increasing production to record numbers, so any cut will have less influence than it would have had 2 months ago. Iraq is also a main obstacle to reaching an agreement, as it wants to be excluded from cutting or freezing production, just as Iran, Libya and Nigeria. In the US we have also seen production increase over the last few weeks and we will wait to see if last week production increased further. Based on the active rigs that would be very well possible. API crude stock increased more than expected with 3.6 million barrels. As always the EIA inventories are more important and we have seen a huge difference between the API and EIA data of at least 2 million barrels over the last few weeks.
Stocks
Teva – dropped over 8% yesterday and has been performing quite badly over the last few weeks and has been trading down for 4 consecutive months already. In part this was obviously due to the scorn big pharmaceuticals received over price fixing. Teva will also have to deal with the fact that its flagship drug – Copaxone – will be open for competition pretty soon. On top of this, it released its earnings yesterday, which were more in less in line with the expectation, but its forecast was not as good as expected. Especially if we look that revenue for Copaxone was over $1 billion, which is likely to be cut drastically once competitors are able to get into this market. We are approaching the support area around the 37 level.