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Brent Crude (LCOc1), S&P 500 INDEX (SPX) & GBP/USD – FinTwit Trends 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 vital juncture each basically 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 comprise 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 keeping with OPEC, anticipated development in non-OPEC provide permits for them to take care of its present gradual unwinding of provide (helps preserve present costs).

BALANCE OF SUPPLY AND DEMAND

OPEC balance of supply and demand

Supply: OPEC

The chart above reveals the availability and demand imbalances so far in 2021. The development of extra demand is more likely to proceed as we spherical off 2021 nevertheless, the margins are more likely to scale back as provide will increase and demand is anticipated to drop. Anticipated drops in demand from each China and India as a result of 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 each 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 check of the $80.00 help stage which concurrently broke under flag help. The each day candles didn’t shut under flag help thus abandoning two lengthy decrease wicks (bullish indication). A affirmation shut under flag help might recommend additional draw back and probably concentrating on subsequent help ranges.

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

Key resistance ranges:

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 report ranges final week however has since dissipated as Fed taper discuss and the potential for before anticipated tightening in 2022. This doesn’t bode effectively for the SPX constituents long-term as the present accommodative surroundings might soften forward of time.

Up to now now we have witnessed a outstanding feat of 82% of earnings coming in above estimates in response to Refinitiv – see graphic under. With extra to return, 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 tip shopper.

SPX scorecard

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The bullish argument is additional augmented by historic developments as seen within the chart under. November tends to supply important good points in comparison with different months of the yr barring April together with decrease volatility. The volatility facet holds true in 2021 and solely time will inform if the SPX will dwell as much as its popularity of outperformance in November.

SPX monthly historic performance

SPX DAILY CHART

SPX daily chart

Chart ready by Warren Venketas, IG

Current 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 under the historic common of +1.50% albeit a tough guideline. This being stated, SPX has been fairly prolonged to the upside and has lately come out of overbought territory on the RSI so the present drop in worth might push decrease in the direction of trendline help.

Key resistance ranges:

Key help ranges:

UK ECONOMIC DATA MAY KICKSTART HAWKISH PRESSURE NEXT WEEK

Pound sterling has been in free fall because the Financial institution of England (BoE) shock fee 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 buck. Subsequent week, UK inflation might spark a restoration for the pound ought to precise information are available in increased than anticipated – see calendar under.

UK GDP UK economic calendar

Supply: DailyFX financial calendar

The December BoE assembly as outlined under has markets pricing in a 51.65% likelihood of a fee hike at 0.35%. I foresee this share 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 elements that favor USD energy. The distinction between the Fed and BoE when it comes to fee hike paths (timeline) might sway courtesy to sterling short-term because the Fed is more likely to solely hike in 2022 (probably 2023) whereas the BoE may 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 an extra detrimental haze across the pound. The potential for a commerce struggle between the EU and UK might be catastrophic for the forex and progress on this matter ought to 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 each day chart above. Channel help is being referred to as into query as soon as extra. Can this decrease trendline maintain? We’ve got seen marginal breaks under trendline help in March 2021 however has since held agency in opposition to bearish strain. The basic financial information ought to give some directional bias to the pair subsequent week which I consider ought to see some uptick in GBP/USD worth motion.

The Relative Energy 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). Typically this phenomena results in increased costs of the underlying asset however timeframe may be tough to foretell.

In abstract, there’s potential for additional draw back (short-term) however I consider this shall 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:

Contact and comply with Warren on Twitter: @WVenketas



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