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Gold Price Drops as US Treasury Yields Push Higher

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Talking Points:

A stronger US Dollar on the back of higher US Treasury yields (both nominal and real) has paved the way for lower Gold prices.

– Gold’s symmetrical triangle, previously eying topside resolution, has failed and broken to the downside.

Sentiment for the US Dollarhas started to turn contrarian bullishmidway though Q2’18.

For longer-term technical and fundamental analysis, and to view DailyFX analysts’ top trading ideas for 2018, check out the DailyFX Trading Guides page.

Gold prices broke below their March 1 swing low at 1302.68 today, setting up a break to fresh 2018 lows and a break of the symmetrical triangle in place since mid-January all in one fell swoop.

Concurrently, the break of the uptrend from the December 2016, July 2017, and March 2018 has now definitely broken to the downside, after the failed return to the trendline last week. Now, bearish momentum is accelerating, with Gold prices below their daily 8-, 13-, and 21-EMAs, and both MACD and Slow Stochastics trending lower in bearish territory.

Gold Price: Daily Timeframe (September 2016 to April 2018) (Chart 1)

Gold Price Drops as US Treasury Yields Push Higher

What has been the catalyst to this break lower by bullion? A stronger US Dollar on the back of higher US Treasury yields (both nominal and real) has paved the way for lower Gold prices.

Gold Price versus US Real 10-year Yield: Daily Timeframe (May 2017 to May 2018) (Chart 2)

Gold Price Drops as US Treasury Yields Push Higher

Presently, rising US real yields means that the spread between Treasury yields and inflation rates are increasing. If Gold yields nothing, has an estimated cost of carry of -2.4%, and only can return capital appreciation, it faces a difficult situation when US real yields rise.

That is, gold’s appeal as an inflation hedge relative to the US Dollar increases not in an environment when inflation is just rising, but when inflation is rising and nominal interest rates are not rising at the same pace; or in sum when US real interest rates are dropping. This has not been the case.

Currently, the 50-day correlation between Gold prices and the US real 10-year yield has reached its strongest negative correlation since the end of November 2017. That’s to say that as US Treasury yields continue to push higher, assuming inflation stays at its same rate or drops, then US real yields will continue to rise, undercutting Gold’s price even further.

Read more: US Dollar Pacing to Fresh Yearly Highs as US Yields Jump

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX



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Forex

Slowing New Zealand GDP to Rattle Post-Fed NZD/USD Rally

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Trading the News: New Zealand Gross Domestic Product (GDP)

Updates to New Zealand’s Gross Domestic Product (GDP) report may rattle the NZD/USD rally following the Federal Reserve meeting as the growth rate is expected to narrow to 2.5% from 2.6% per annum in the third-quarter of 2018.

Image of DailyFX economic calendar

Another downtick in the GDP print may produce headwinds for the New Zealand dollar as it warns of a slowing economy, and a dismal development may push the Reserve Bank of New Zealand (RBNZ) to alter the forward-guidance as the central bank warns ‘trading-partner growth is expected to further moderate in 2019.’

Even though the official cash rate (OCR) sits at the record-low of 1.75%, the weakening outlook for economic activity may encourage the RBNZ to further insulate the economy as the central bank asserts that ‘the direction of our next OCR move could be up or down.’ In turn, a GDP print of 2.5% or lower may spark a bearish reaction in NZD/USD, but a positive development may fuel the advance following the Federal Reserve meeting as it curbs bets for an RBNZ rate-cut. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Impact that the New Zealand GDP report has had on NZD/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

3Q

2018

12/19/2018 21:45:00 GMT

2.8%

2.6%

-10

-15

3Q 2018New Zealand Gross Domestic Product (GDP)

NZD/USD 15-Minute Chart

Image of nzdusd 15-minute chart

New Zealand’s Gross Domestic Product (GDP) report showed the growth rate increasing 2.6% after expanding a revised 3.2% in the second-quarter of 2018. A deeper look at the report showed Mining as the biggest contributor to growth as the sector grew 12.4% in the third-quarter, with Wholesale Trade climbing 1.1.% during the same period, while Utilities suffered a 2.3% decline after rising 4.1% during the three-months through June.

The New Zealand dollar struggled to hold its ground following the below-forecast print, with NZD/USD pulling back from the 0.6800 handle to close the day at 0.6774. Learn more with the DailyFX Advanced Guide for Trading the News.

NZD/USD Daily Chart

Image of nzdusd daily chart

  • Broader outlook for NZD/USD remains fairly constructive as both price and the Relative Strength Index (RSI) continue to track the upward trends from earlier this year, but the exchange rate may face range-bound conditions over the near-term as it appears to be stuck in a long-term wedge/triangle formation.
  • With that said, the Fibonacci overlap around 0.6930 (23.6% expansion) to 0.6960 (38.2% retracement) sits on the radar as it lines up with the 2019-high (0.6942), with a break/close above the stated region raising the risk for a run at the December-high (0.6969).
  • Next region of interest comes in around 0.6990 (50% expansion) following by the 0.7040 (50% retracement) zone, but failure to hold above the 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion) area may trigger a move back towards 0.6780 (100% expansion) to 0.6790 (50% expansion).

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide.

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.

— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.



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Forex

Crude Rally Testing Critical Resistance Zone

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In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. Crude Oil prices have rallied nearly 10% from the yearly lows with the advance now testing a key technical resistance confluence around the 60-handle. These are the updated targets and invalidation levels that matter on the Crude Oil weekly price chart. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

New to Oil Trading? Get started with this Free How to Trade Crude Oil Beginners Guide

USD/CAD Weekly Price Chart

Oil Price Chart - Crude Weekly - WTI

Notes: In last month’s Crude Oil Weekly Technical Outlook we noted that price was approaching 2018 pitchfork resistance with, “A topside breach of this formation / the high-day close at 57.14 targets more a more significant resistance confluence at 59.61-60.06 where the 50% retracement of the October decline and the 2018 open converge on the 2015/ 2016 pitchfork resistance- look for a larger reaction there IF reached.” Oil prices are testing this critical resistance confluence today on the back of a weak inventories report that showed a drop of more than 9.59mln barrels last week.

The focus is on a reaction off this threshold with the yearly advance at risk near-term while below. A weekly close above would be needed to suggest that a more meaningful low was registered in December with such a scenario targeting the 52-week moving average at ~62.82 and the 61.8% retracement of the 2018 decline at 63.68. Key support and bullish invalidation now rests back at 55.21/53– weakness beyond this threshold would risk substantial losses for crude prices.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line: We’re looking for a reaction on this stretch into confluence resistance at 59.61 – 60.06. Watch the weekly close- below would highlight the threat for a near-term correction / exhaustion in price. From a trading standpoint, a good place to reduce long-exposure and raise protective stops. We’ll be looking for possible price exhaustion heading into next week IF crude prices respect this threshold into the close. I’ll publish an updated Crude Oil Technical Outlook once we get further clarity in near-term price action

Even the most seasoned traders need a reminder every now and then- Avoid these Mistakes in your trading

Crude Oil Trader Sentiment

Oil Trader Sentiment - Crude Positioning - WTI

  • A summary of IG Client Sentiment shows traders are net-short Crude Oil – the ratio stands at -1.04 (49.1% of traders are long) – neutral reading
  • Long positions are 4.2% lower than yesterday and 5.7% lower from last week
  • Short positions are 8.2% lower than yesterday and 1.5% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil – US Crude prices may continue to rise. Yet traders are less net-short than yesterday but more net-short from last week and the combination of current positioning and recent changes gives us a further mixed Oil – US Crude trading bias from a sentiment standpoint.

See how shifts in Crude retail positioning are impacting trend- Learn more about sentiment!

Previous Weekly Technical Charts

Learn how to Trade with Confidence in our Free Trading Guide

— Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

https://www.dailyfx.com/crude-oil/how-to-trade-crude-oil.html?ref-author=Boutros



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US Market Open: Top 3 Market Drivers

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Market Themes and Movers – Brexit, FOMC and US-China Trade.

GBP: Another day of confusion and conflicting Brexit deal/delay talks continue to leave Sterling rudderless. Despite the current impasse the British Pound remains bid, although it is becoming increasingly vulnerable to short, sharp moves as news flows continue. The latest round of media reports suggest that PM May is looking for a three-month Brexit delay from EU negotiators although putting a revised meaningful vote to Parliament cannot be ruled out. UK inflation data released this morning showed little change and was put aside as traders focus on Brexit updates.

USD: The latest FOMC monetary policy decisionswill be released later in the UK session with monetary settings expected to be left unchanged. Traders will look for clues from Fed Chair Jerome Powell on the future path of interest rates, via the dot plot, and his latest thoughts on balance sheet normalization.

Gold/Oil: Both gold and oil are struggling to make further headway with one eye on the FOMC meeting and the other on the latest US-China trade negotiations with US President Donald Trump tweeting yesterday that talks were going ‘very well’. As with Brexit, the situation remains fluid with news flows again the dominant driver for trade war risk sentiment. With global growth falling, any positive trade news should underpin oil at its present level and may well give it a further leg-up in the short- to medium-term.

Professional Crude Oil and Energy Trading Fundamentals – Brynne Kelly.

Chart of the Day – US Dollar Basket – Over to You Fed

US Market Open: Top 3 Market Drivers - Brexit, FOMC and Trade Risk

DailyFX Economic Calendar: For updated and timely economic releases.

How to use IG Client Sentiment to Improve Your Trading

Retail sentiment is an important tool for any trader to help gauge market sentiment and positioning. We provide updated daily and weekly positional changes on a wide range of currencies and asset classes to help decision making.

Market Movers with Updated News and Analysis:

  1. Sterling (GBP) Price Slips on Renewed Brexit Confusion, UK Inflation Stable.
  2. Preview for March FOMC Meeting and US Dollar Price Forecast.
  3. Trading Outlook for Gold Price, Crude Oil, Dow Jones and More.
  4. FTSE Technical Analysis – Support on Dip, New Levels of Resistance Targeted.

— Written by Nick Cawley, Market Analyst

To contact Nick, email him at Nicholas.Cawley@ig.com

Follow Nick on Twitter @nickcawley1



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