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Brent Crude (LCOc1), S&P 500 INDEX (SPX) & GBP/USD – FinTwit Traits to Watch

brent-crude-(lcoc1),-s&p-500-index-(spx)-&-gbp/usd-–-fintwit-traits-to-watch

FINTWIT ANALYSIS

  • OPEC month-to-month report largely unchanged, bullish technical setup.
  • SPX earnings season slowdown, Fed taper and month-to-month seasonality.
  • GBP at essential juncture each essentially and technically.

OPEC HOLDING BACK SUPPLY MAY SUSTAIN HIGH BRENT CRUDE PRICES

OPEC launched its month-to-month oil market report for November this week which didn’t include any main revisions from the earlier report, leading to minimal brent crude worth motion. Key highlights pf the report embody:

  • 2021 world demand revised decrease by +/-0.2 mb/d.
  • 2022 world oil demand development stays unchanged at 4.2mb/d.
  • In response to OPEC, anticipated development in non-OPEC provide permits for them to take care of its present gradual unwinding of provide (helps keep present costs).

BALANCE OF SUPPLY AND DEMAND

OPEC balance of supply and demand

Supply: OPEC

The chart above reveals the availability and demand imbalances to date in 2021. The development of extra demand is prone to proceed as we spherical off 2021 nevertheless, the margins are prone to scale back as provide will increase and demand is anticipated to drop. Anticipated drops in demand from each China and India resulting from excessive costs might weigh negatively on brent crude going froward.

BRENT CRUDE (LCOc1) DAILY CHART

brent crude daily chart

Chart ready by Warren Venketas, IG

The every day brent crude chart above could also be suggestive of a bull flag sample (blue), historically representing a continuation of the sooner uptrend. Final week noticed an unsuccessful take a look at of the $80.00 help stage which concurrently broke beneath flag help. The every day candles didn’t shut beneath flag help thus forsaking two lengthy decrease wicks (bullish indication). A affirmation shut beneath flag help might counsel additional draw back and probably focusing on subsequent help ranges.

From the bullish perspective, a break above flag resistance might convey the $86.65 resistance stage into consideration.

Key resistance ranges:

  • $86.65

Key help ranges:

  • $80.00
  • 100-day EMA (yellow)

S&P 500 INDEX SLIPS AFTER ALL-TIME HIGHS

Earnings season within the U.S. has given SPX bulls the a lot wanted stimulus to hit document ranges final week however has since dissipated as Fed taper discuss and the potential for ahead of anticipated tightening in 2022. This doesn’t bode effectively for the SPX constituents long-term as the present accommodative atmosphere might soften forward of time.

So far we’ve got witnessed a exceptional feat of 82% of earnings coming in above estimates in keeping with Refinitiv – see graphic beneath. With extra to come back, the index might even see consequent highs ought to this development proceed; a possible consequence as prior outcomes have revealed the power of U.S. companies to switch the price of inflation onto the top client.

SPX scorecard

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The bullish argument is additional augmented by historic tendencies as seen within the chart beneath. November tends to supply vital features in comparison with different months of the yr barring April together with decrease volatility. The volatility side holds true in 2021 and solely time will inform if the SPX will dwell as much as its repute of outperformance in November.

SPX monthly historic performance

SPX DAILY CHART

SPX daily chart

Chart ready by Warren Venketas, IG

Latest wading in and across the longer-term trendline (black) might proceed as earnings season develops. Month-to-date (MTD) the index is already up 0.95%, nonetheless beneath the historic common of +1.50% albeit a tough guideline. This being mentioned, SPX has been fairly prolonged to the upside and has not too long ago come out of overbought territory on the RSI so the present drop in worth might push decrease in direction of trendline help.

Key resistance ranges:

  • 4800.00
  • 4718.93
  • 4700.00

Key help ranges:

  • Trendline help
  • 4600.00

UK ECONOMIC DATA MAY KICKSTART HAWKISH PRESSURE NEXT WEEK

Pound sterling has been in free fall for the reason that Financial institution of England (BoE) shock price announcement final week. The U.S. greenback has concurrently gained traction as a safe-haven play (Evergrande) and a rise within the coverage tightening debate. Thursday this week noticed weak UK GDP information including to the depreciation in opposition to the dollar. Subsequent week, UK inflation might spark a restoration for the pound ought to precise information are available increased than anticipated – see calendar beneath.

UK GDP UK economic calendar

Supply: DailyFX financial calendar

The December BoE assembly as outlined beneath has markets pricing in a 51.65% likelihood of a price hike at 0.35%. I foresee this proportion likelihood determine to escalate because the assembly attracts nearer in December. The reasoning behind this the persistent inflation rhetoric being sustained with world provide constraints and elevated power costs unlikely to abate throughout this era. This could result in a stronger GBP, however the greenback faces related motivating components that favor USD power. The distinction between the Fed and BoE when it comes to price hike paths (timeline) might sway courtesy to sterling short-term because the Fed is prone to solely hike in 2022 (probably 2023) whereas the BoE might announce a hike within the December assembly.

BoE RATE HIKEPROBABILITY

BoE rate hike probability

Supply: Refinitiv

Article 16 as detailed within the write-up by my colleague Justin McQueen has introduced a further detrimental haze across the pound. The potential for a commerce warfare between the EU and UK could possibly be catastrophic for the forex and progress on this matter must be monitored carefully.

GBP/USD DAILY CHART

GBP/USD daily chart

Chart ready by Warren Venketas, IG

For a lot of 2021 GBP/USD has been buying and selling inside a downward channel (black) as proven within the every day chart above. Channel help is being known as into query as soon as extra. Can this decrease trendline maintain? We now have seen marginal breaks beneath trendline help in March 2021 however has since held agency in opposition to bearish stress. The basic financial information ought to give some directional bias to the pair subsequent week which I imagine ought to see some uptick in GBP/USD worth motion.

The Relative Power Index (RSI) helps this notion within the type of bullish divergence which associated to a opposite motion within the RSI (inexperienced) relative to the underlying worth motion. In easy phrases, GBP/USD is forming decrease lows whereas the RSI displays increased lows (inexperienced). Usually this phenomena results in increased costs of the underlying asset however timeframe could be tough to foretell.

In abstract, there’s potential for additional draw back (short-term) however I imagine this will likely be restricted earlier than the a reversal in worth results in pound appreciation.

Key resistance ranges:

  • 1.3800
  • 1.3579 – 23.6% Fibonacci
  • 1.3412 – September swing low

Key help ranges:

  • 1.3300
  • 1.3164 – 38.2% Fibonacci

Contact and comply with Warren on Twitter: @WVenketas

DailyFX gives foreign exchange information and technical evaluation on the tendencies that affect the worldwide forex markets.

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