Market Prepares for the FED: Traders Expect No Surprise

The last week of April was notable due to controversial data from the US: a weaker than expected GDP was compensated by the strong employment report from Friday’s NFP publication: 177k new payrolls have beaten expectations and show resilience of the US economy, especially if we recall unchanged unemployment at a 4.2% level.

This situation doesn’t increase the odds of an interest rate decline in May: the scenario of a one step decline had dropped to 2.6% (from 8% earlier this week) after a strong NFP report.

Stock indices have been recovering this week, as market sentiment slowly turns into the positive territory: according to the “fear and greed index” from CNN, market balances between “fear” and “neutral” phase, but no longer in the “extreme fear” territory.

The overall improvement is associated with the drop of the “ buy defense” narrative: Gold is no longer in favor, along with EUR and JPY. That might also be associated with the end of a rising seasonal cycle for Gold: usually, it consolidates during the May-July period, according to seasonal studies.

Crude oil, on the contrary, has a strong seasonal window to grow in May after dipping in April, so it’s possible to observe the price of WTI oil getting back to the fair price of $60 (that’s a price calculated by eia.gov)

Gold

Gold had probably finished its active phase of accumulation and has a chance of locking in a consolidation, here’s why:

Volatility (ATR) on the daily chart had reached the long-term peak: usually, it points to a market ending the active phase of the rally.

The net position of commercial traders from the COT report has been reaching new peaks on a week-to-week basis. Usually, that is associated with the declining price: the continuation of a price trend is unlikely in such circumstances, at least immediately.

From 25-year seasonal studies, Gold has completed the seasonal window of growth, and has a chance of being locked in a consolidation.

USOIL

Crude oil had tested the lower band of the Bollinger Bands indicator on the daily chart. Being a momentum instrument, it has a chance of testing the area below the previous intermediate-term low (testing 52-55k area), after which the price may turn back to $60: the fair price according to the STEO forecast from eia.gov

As WTI oil is entering the seasonal window of growth, so we can assume the mean-reversion scenario to dominate in the near future, especially considering the improving market sentiment.