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Bull-Flag Unfolds as Fed Warns of ’Muted’ Inflation

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Gold Talking Points:

Gold pares the decline from earlier this month as a growing number of Federal Reserve strike a dovish tone, and fresh data prints coming out of the U.S. economy may fuel expectations for a more accommodative stance as the Consumer Price Index (CPI) is expected to narrow for the third consecutive month in January.

Fundamental Forecast for Gold: Bullish

The sudden shift in Fed’s forward-guidance appears to have heighten the appeal of gold as the central bank now endorses a wait-and-see approach for monetary policy, and the Federal Open Market Committee (FOMC) may continue to tame bets for higher interest rates as ‘inflation readings have been muted.’

In fact, updates to the CPI are anticipated to show the headline reading slowing to1.5% from 1.9% per annum in December, with the core rate of inflation slipping to 2.1% from 2.2% during the same period. As a result, signs of subdued price growth may encourage the Fed to conclude the hiking-cycle ahead of schedule as St. Louis Fed President James Bullard, a 2019-voting member on the FOMC, argues that ‘market-based signals such as low market-based inflationexpectations and a threatening yield curve inversion suggestthat the FOMC needs to tread carefully going forward.’

At the same time, it remains to be seen if the Fed will ultimately taper the $50B/month in quantitative tightening (QT) as ‘the level of reserves that are going to beneeded in our new floor system is probably going to be quite abit higher than what many would have thought even one or twoyears ago, and the central bank may merely attempt to buy more time at the next meeting in March amid the ‘elevated uncertainty around several unresolvedgovernment policy issues, including Brexit, ongoing trade negotiations, and the effects from thepartial government shutdown in the United States.

Looking for a technical perspective on Gold? Check out the Weekly Gold Technical Forecast.

Gold Price Forecast: Bull-Flag Unfolds as Fed Warns of 'Muted' Inflation

Looking ahead, Chairman Jerome Powell is slated to deliver another speech on February 12, with market participants largely geared towards a dovish statement as Fed Fund Futures show the central bank on hold throughout 2019, and gold may exhibit a more bullish behavior over the near-term as the price for bullioncontinues to track the upward trend from late-2018.Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

Gold Daily Chart

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The broader outlook for gold remains constructive as both price and the Relative Strength Index (RSI) track the bullish trends from late-2018, but the lack of momentum to break/close above the $1328 (50% expansion) to $1329 (50% expansion) region raises the risk for a near-term correction especially as the momentum indicator falls back from overbought territory.

Nevertheless, a bull-flag formation appears to be unfolding as the former-resistance zone offers around $1298 (23.6% retracement) to $1302 (50% retracement) offers support, with gold at risk of exhibiting a more bullish behavior over the coming days as it initiates a fresh series of higher highs & lows. Need a break/close back above $1316 (23.6% retracement) to see another run at $1328 (50% expansion), with a break/close above the stated region bringing the $1340 (61.8% expansion) on the radar. Will also keep a close eye on the RSI as it appears to be responding to trendline support, with a move above 70 raising the risk for fresh 2019 highs in gold as the bullish momentum resurfaces.

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other markets the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

Other Weekly Fundamental Forecast:

Australian Dollar Forecast – Australian Dollar Could Take Some Rest On The Road Lower

New Zealand Dollar Forecast – NZD/USD Looks Vulnerable. How Dovish Will the RBNZ Turn Next Week?

Oil Forecast – Fears of Slowing Global Growth to Limit Further Gains

British Pound Forecast – Dovish BoE, Brexit Hell

US Dollar Forecast – US Dollar May Build on Rebound as Market Mood Sours Further



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Forex

Traders Net-Short Are 63.3% Higher from Last Week

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US500,SP500

TRADERS REMAIN NET-SHORT

US 500: Retail trader data shows 24.6% of traders are net-long with the ratio of traders short to long at 3.07 to 1. In fact, traders have remained net-short since Jan 07 when US 500 traded near 2473.53; price has moved 11.9% higher since then. The number of traders net-long is 1.7% higher than yesterday and 1.6% lower from last week, while the number of traders net-short is 5.2% higher than yesterday and 63.3% higher from last week.

For more in-depth analysis, check out the Q1 2019 Forecast for Equities

S&P 500 SUGGESTS STRONG BULLISH BIAS

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests US 500 prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger US 500-bullish contrarian trading bias.

— Written by Nancy Pakbaz, CFA, DailyFX Research

Follow Nancy on Twitter @NancyPakbazFX



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On to the Next Big Levels of Resistance

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S&P 500/Dow Jones/Nasdaq 100 Technical Highlights:

  • S&P 500 nearing 2800-area, several swing-highs from last year
  • Dow Jones 26k-ish stands between it and record highs
  • Nasdaq 100 trading around resistance already

Check out the forecasts for Global Stock Indices and other markets on the Trading Guides page.

S&P 500 nearing 2800-area, several swing-highs from last year

The S&P 500 is continuing to show impressive strength since its v-bottom began the day after Christmas, with it having a few points along the way where it could have been stopped in its tracks. But it wasn’t, and this has levels prior to the December swoon in view. The area surrounding 2800 is a big one.

From 2800 up to 2817 there were three peaks created from failed rallies, a logical area, with the rally having come this far, to look for stocks to weaken from. Watching price action will be key, as always, but especially around the levels just ahead.

While resistance looks likely to get tested soon, the upward channel structure over the past month will keep stocks pointed higher for as long as it holds. If the S&P is rejected off resistance, to further bolster the notion of a sizable retracement we’ll need to see the underside parallel undermined.

For now, the top-side must be respected, but the time for material weakness may be nearing…

Stocks are rallying, but will it last in the long-term? Find out where our analysts see stocks headed in the Global Equities Forecast.

S&P 500 Daily Chart (2800/817 big spot)

S&P 500 daily chart, 2800/817 big spot

Dow Jones 26k-ish stands between it and record highs

The Dow is nearing the 26k-area, a spot which is basically the equivalent of what 2800 is to the S&P 500. The zone runs up to near 26300. The focus is primarily on the S&P right now as it is the broader index, but depending on how price action plays out, the Dow may be the better index to short at some point if it shows relative weakness to the broader market.

Dow Daily Chart (26k-ish stands in the way)

Dow daily chart, 26k-ish stands in the way

Nasdaq 100 trading around resistance already

The Nasdaq 100 continues to lag behind, which is something to continue monitor given it was the bull-market leader with its leading group of stocks – FAANG – dominating price action and sentiment. The NDX is trading around the 200-day and near late-year swing highs equivalent to the ones discussed with regard to the S&P 500 and Dow. So far, relative weakness is making the 100 the preferred fade if the S&P finds material selling off resistance surrounding 2800/17.

Nasdaq 100 Daily Chart (trading around resistance)

Nasdaq 100 daily chart, trading around resistance

To learn more about U.S. indices, check out “The Difference between Dow, Nasdaq, and S&P 500: Major Facts & Opportunities.” You can join me every Wednesday at 10 GMT for live analysis on equity indices and commodities, and for the remaining roster of live events, check out the webinar calendar.

Tools for Forex & CFD Traders

Whether you are a beginning or experienced trader, DailyFX has several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX



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Aussie Dollar Falls on RBA Minutes, US-China Trade Talks Eyed

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TALKING POINTS – AUSSIE DOLLAR, RBA MINUTES, ZEW, TRADE WARS, CHINA

  • Aussie Dollar, commodity bloc FX down on downbeat RBA meeting minutes
  • Germany’s ZEW survey may compound worries about slowing global growth
  • Trade wars in focus on US-China negotiations, fears of US auto tariff hike

The sentiment-linked Australian, Canadian and New Zealand Dollars weakened in otherwise quiet Asia Pacific trade. The move appeared to be inspired by an ominous tone in minutes from February’s RBA policy meeting. Meanwhile, the US Dollar corrected gently higher.

RBA officials cited “significant uncertainties”, noting that trade tensions and cooling domestic demand have increased negative knock-on risks from China. They added that consumption may fall if domestic house prices fall much further. They suffered the worst drop since 1983 in the three months through January.

TRADE WAR DEVELOPMENTS, GERMAN ZEW DATA MENACE MARKETS

Looking ahead, Germany’s ZEW survey of analyst sentiment may compound the downbeat mood, especially if it echoes the disappointing trend in regional data outcomes since September. A small improvement in the forward-looking Expectations index is nevertheless expected to keep it within a hair of six-year lows.

The tone of US-China trade negotiations may also be formative as a delegation from Beijing arrives in the US for continued talks. Both sides painted a rosy picture earlier in the week, but the Trump administration may be preparing a spoiler as the President ponders raising auto import tariffs.

What are we trading? See the DailyFX team’s top trade ideas for 2019 and find out!

ASIA PACIFIC TRADING SESSION

Asia Pacific Trade Economic Calendar

EUROPEAN TRADING SESSION

Europe Trade Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter



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