Hello Friends, volatility is back like never before. Are you ready to take advantage of these movements? Do you know why OIL is dropping so hard today?
The tens of billions of dollars traded every day in WTI futures are almost always settled financially, but any contract that hasn’t been closed out after expiry has to be liquidated with a physical delivery of oil if the parties can’t come to some kind of over-the-counter agreement. Those deliveries go to the storage hub of Cushing, Oklahoma, which is connected by pipeline to Canada, the U.S. Midwest, West Texas and the Gulf Coast.
The problem is that Cushing is rapidly filling as fuel consumption collapses due to lockdowns to stem the coronavirus pandemic. Crude stockpiles ballooned by almost 16 million barrels in the three weeks through April 10 to 55 million barrels. The hub had working storage capacity of 76 million as of Sept. 30, according to the Energy Information Administration.
That’s bad news if you’re long May futures, because if you don’t close out your position by the end of trading Tuesday, you have just a few days to let the seller know how you’re going to accept delivery, which is due from May 1-31. At the rate Cushing is filling, finding space is going to be difficult, especially for financial traders who rarely deal with the physical world.
That’s one of the reasons why May contracts is trading at such a discount to those for June. The wide gap is also being driven by the large flows of exchange-traded funds into the June contract. The U.S. Oil Fund accounted for about 25% of outstanding June crude as of last week. Source: Bloomberg
You already realized that we have a pro-coronavirus team spreading bad news and hoping for the worse. The truth is things are improving and it’s happening fast. News is focusing on the death rate while we should be focusing on the recovery rate.
- Infected: 2428638
- Deaths: 166139
- Recovered: 636962
Of course, we are traveling a bumpy road, but every dip is an opportunity.
Some headlines supporting my view:
- Coronavirus relief deal for U.S. small businesses may come Monday, Trump says
U.S. Democrats and Republicans are near agreement on extra money to help small businesses hurt by the coronavirus pandemic and could seal a deal as early as Monday, President Donald Trump said on Sunday. - Germany saw the growth of new cases fall to 1.4 percent, while new fatalities rose by 2.3 percent, both the lowest of the outbreak.
- Italy continued to see lower rates over the last 24 hours, with case growth at 1.7 percent, and a similar rate in fatalities. Spain saw case growth tick up a little to 2.2 percent and showed a similar fatality growth rate.
- US: The Assistant Secretary for Health, Dr. Brett Giroir, said that to enter Phase 1 of the federal reopening guidelines, the US needs to be doing about 4.5 million tests per month. President Trump said there is currently enough testing capacity to allow a phased reopening of the economy, despite the concerns of shortages.
- Roche said it has developed an antibody test it hopes will be available by early May. It said it is working with the US FDA for an Emergency Use Authorisation.
AUDCAD – Downtrend Resumption
Commercials did what we expected from them and curious and rate things happened:
Commercials stopped their positions.
When the drop started 02/02/2020 commercials started adding to long positions, as they are counter-trend traders, but in the week that started at 08/03 commercials were no longer adding to longs, but they stopped they previous bought positions what added more fuel to the big drop we all saw.
At the start of April, they started buying again at the same time non-commercials started adding to shorts again. What I expect to see from here is a little more upside near 0.91500 region and then drop again.
Hit and Run
Trading Plan
CADCHF – Uptrend Resumption
Commercials made their job halting the drop, they changed net position from -22k to +35k. What I expect now is they get back to the short side again as the pair will start going up from here. If you struggle to understand why I say in the picture this is the expected commercial behavior, check the reason here.
Trading plan
EURNZD – BEARISH BIAS
This one I see as a great opportunity. Non-commercials bought all this drop, but the pair it’s not going up. So, my friends, I expect another massive and fast drop and the big speculator’s group gets stopped out.
Cot misbehavior
Trading Plan
EURGBP – Downtrend Resumption
Here I could write the same words I did for EURNZD, so I will spare you from another cot position chart and we go with the trading plan only!
Trading Plan
Do you know when you know you are fucked? This is the situation with big speculators at EURNZD and EURGBP and I will them using the rallies to get out of these losing positions. That’s the reason why on EURGBP I will try to sell a little higher.
USDCHF – BULLISH BIAS
Well if you reach here I have something interesting for you. The year of 2005 was we saw India and China growing as World Financial Powers.
Almost all-region in Asia are net oil imports. This will help to offset the economic disruption. This is net positive to countries in the region
India and China will benefit most from this both have inflation that is higher than they like at the moment the drop in oil and fuel prices help to alleviate those pressures, and Goldman Sachs is waiting to deal with lower oil prices to the next months.
What does this have to do with USDCHF? Some of the relations are hard to understand and even get to know it, that’s the reason we look for patterns. I see know a very similar scenario developing in 2020 that developed in 2005, and this was what happened to USDCHF in 2005.
Check how 2020 and 2005 have a big correlation. With a cot bullish signal for USDCHF, I am going long on it.
Trading Plan
If the story repeats itself we can see USDCHF near above 1.06. I am making a bet on this!
Some great opportunities for this week. Remember to trade the supply zones. Move your trade to a lower timeframe like 4 hours and add more positions in breakouts, moving stop-loss to the last swing.
That’s it my friends! I hope you can make money from this and I wish you a great weekend for you all!
The Supply/Demand indicator used in the charts is available in my store for cTrader.
That’s it my friends! I hope you all can make some money out of this info and if you have doubts or want to hear about or currency/commodity leave a reply!
Best regards
Leo Hermoso
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