– Gold prices have continued to gyrate within a downward-sloping channel after setting a fresh yearly-high in late-January. Support thus far has held above $1,300; but short-term charts show a continued response from sellers, pointing to the possibility of near-term down-side before the longer-term bullish trend might be ready for resumption.
– The next two weeks bring a heightened focus around the US Dollar, and Gold as the ‘Anti-Dollar’ will likely be along for the ride. Tomorrow brings US CPI, and next week brings a Federal Reserve rate decision, currently carrying an 89% probability of a hike.
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Gold Prices Gyrate After Rallying-Up to Fresh Yearly Highs
Gold prices were on a tear as we came into 2018, extending the rally that had started in mid-December to go along with another bearish kick to the US Dollar. After setting support at $1,236 in December, prices were almost $130 higher just six weeks later. But since that fresh yearly high posted in late-January, buyers have been unable to muster any significant strength, and Gold prices continue to gyrate within a bearish channel, connecting the post-January highs and the post-January lows.
Gold Price Chart: Bearish Channel Builds After Print of Fresh Yearly Highs Above $1,357.50
Chart prepared by James Stanley
Fibonacci Support Bending, But Not Yet Broken on the Daily Chart
It hasn’t yet been an entirely negative story in Gold since that high was set, as that bearish channel has come along with a respectable response at support. Adding a Fibonacci retracement to the bullish move looked at above shows a 38.2% retracement at $1,316.63, and this has largely helped to hold support in the pair on a Daily basis. Intra-day, this has been messy, but it’s notable that we haven’t seen a daily close below this price since the first incursion earlier in February.
Gold Price Chart: Daily Time Frame, Fibonacci Support Bending, Not Yen Broken by Daily Close in March
Chart prepared by James Stanley
The next couple of weeks could be volatile for the US Dollar. Tomorrow morning brings US CPI for the month of February, and next Wednesday brings a FOMC rate decision with the high-expectation of getting a rate hike. This could also play out in Gold, as the build of that bearish channel syncs well with the US Dollar trying to set support throughout February. Nonetheless, traders should be careful with banking on a support break of a level that’s held-up fairly well in the face of increasing pressure over the past few weeks.
Longer-Term Stances in Gold
On a longer-term basis, we’d be looking at an immature bull flag formation, given the recently-started bearish channel at the top of a strong bullish run. But, near-term price action remains messy, and it can be difficult to voice that longer-term view until we see a more relevant level come into play. A top-side break of the March high at $1,340.50 opens the door for bullish approaches, with targets set towards $1,350, $1,357.50 and then the 2018 high at $1,366.06.
Conversely, breaks below the 50% retracement open the door to a deeper sell-off, with next supports cast towards $1,296, and then $1,286.09.
Shorter-Term Approaches in Gold
Shorts can be investigated on a resistance test around the 23.6% retracement at $1,335.52, which had helped to carve out the highs last Tuesday. That high from last Tuesday came-in shy of the prior swing high, at $1,341.04 and $1,340.50, respectively, and this would be looking for another lower-high to continue the sequence. This would allow for stops above $1,341.04 with targets set to the current swing-high of $1,324.05; affording a better than one-to-one risk-reward ratio. If resistance does not show between $1,335.52 and $1,340.49, then the bearish trade is nullified by fresh highs. Secondary targets can be set to the 38.2% Fibonacci retracement at $1,316.63; and if we do finally get a Daily close below this level, tertiary targets can be set to the 50% retracement at $1,301.36.
Gold Price Chart: Four-Hour Time-Frame, Resistance Zone Applied
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on Gold prices? Our DailyFX Forecasts for Q1 have a section specifically for Gold. We also offer a plethora of resources on our Gold page, and traders can stay up with near-term positioning via our IG Client Sentiment Indicator.
Forex Trading Resources
DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.
If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.
— Written by James Stanley, Strategist for DailyFX.com
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Dollar, Euro and Pound Trading Over the Coming Days is Going to Be Fraught
- The severe tumble in risk trends last week wasn’t threatening market stability through the open session of this new week
- DXY has offered little clarity on direction as primary motivation is itself unclear, meanwhile the deficit hit a 6-year high
- Euro and Pound are seeing the quiet before their respective Italian and Brexit storms, be mindful of your trade intent with each
What do the DailyFX Analysts expect from the Dollar, Euro, Equities, Oil and more through the 4Q 2018? Download forecasts for these assets and more with technical and fundamental insight from the DailyFX Trading Guides page.
Risk Trends Steady to Start the Week, the Threats Remain Numerous
Like a life raft encircled by sharks, the risk-leaning benchmarks opened this week with an air of stability while the fundamental threats to the system remain distinctly unresolved. Following last week’s painful collapse in US indices – a move that motivated risk aversion far and wide – Monday’s steadfast conditions were welcomed by harried bulls. The balance was not simply isolated to US equities. European and Asian shares markets registered small movements, the emerging markets offered a measured gap lower without hitting new lows and the Yen-based carry trade eased up on its retreat. Yet, despite the implications such a correlation across diverse markets represents, there is more loaded speculative potential packed into the next move from the S&P 500, Dow and Nasdaq. These indices are still running a considerable premium to nearly every other high-profile ‘risk’ metric even after the deeper rout. The technical picture accurately reflects the circumstances moving forward. All three are hovering just above major trendline support which could readily signal a medium-term reversal in trend if cleared – in concert, the move would get on far more radars. Far more important is the sheer number of possible catalysts that can tip us back into selling pressure – or cue a notable rebound. Anticipation of the US Treasury’s call on Chinese polices keeps trade wars in focus (see the history of a century of trade wars here). Yields are at the mercy of risk trends and US Treasury yields specifically at the command of China. Growth forecasts were downgraded this past week for an otherwise ‘mundane’ threat. Earnings season hits its first ‘FAANG’ update (Netflix) Tuesday after the bell. Then there are the regional threats, which we discus below.
SPX Daily Chart
Dollar Is a Fundamental Stalemate with Too Many Charges to Keep Tabs On
When trading FX, it is difficult to avoid the US Dollar. However, given the state of its fundamental predicament, that may be an effort worth making. Whether we reference the trade-weighted DXY Dollar Index or an equally-weighted measure, there is a distinct lack of bearing on the benchmark. The picture is appropriately reflect via EURUSD, the most liquid currency bar none. There is a multi-year head-and-shoulders pattern that the pair tentative broke in August only to reverse course before conviction could take. What eventually resulted was an inverse variation of the same pattern where the break above 1.1725 again fell apart. Now trading around 1.1600, the Greenback has shown little intent to champion either bullish or bearish interests for the time being. That is not likely due to a lack of meaningful fundamental charge but instead it is more likely a side effect of an overabundance of meaningful themes tugging at the currency. For risk trends, there is not enough intensity to raise the focus on the currency’s safe haven status, but even its carry position has yet to be provoked this week. One fundamental signal that was prodded this past session but still abstract for most is the currency’s position as the unquestioned reserve leader. This United States deficit for 2018 was projected to $779 billion which equates to a 3.9 percent ratio to GDP. That is the largest dip into lending for the government since 2012 and furthers the concern that the country pushing the financing tolerance of the ratings agencies. Until we see one of these key themes take command of the currency’s bearings, it will prove difficult to trace its course.
DXY Daily Chart
Euro and Pound Tension Will Only Build into the Wednesday-Thursday EU Summit
As the Dollar flounders fundamentally, its largest counterparts are honing in on very specific fundamental themes. Yet, where there performance is riding on a single track, the outcome and timing of these uncertainties are problematically open-ended. Form the Euro, we were reminded that the currency’s future is under pressure. Following the growing discord between the Italian government and their EU/Eurozone counterparts this past weeks, the Italian Deputy Prime Minister Salvini remarked that the country doesn’t feel bound by the EU’s deficit rules – making a finer point to previous remarks that the country could increase spending if they don’t meet a generous GDP forecast and their belief that the European Central Bank (ECB) would bail them out should financial conditions grow strained. Prime Minister Conte’s remarks today and the two-day EU Summit Wednesday and Thursday will prove crucial. These particular events will very likely be more market critical than the Eurozone and Italian trade reports or the region’s investor sentiment survey from ZEW. The British Pound will also have a lot invested in the two-day meeting of the European leaders. This is a crucial ‘crunch’ event for the UK and EU to hash out a clear path for the divorce known as ‘Brexit’ (learn about the different possible Brexit outcomes in this special report). If this summit ends without resolution, the Pound is likely to tumble. Just as readily, a positive outcome will trigger a rally. Yet, after the collapse of talks between chief negotiators over the weekend and Prime Minister May’s remarks in Parliament Monday, the Cabinet meeting ahead will more likely set this event for a crash landing.
GBP Index Daily Chart
New Zealand Dollar Jumps after CPI Beat, Reminds of the Virtues of Discounted Majors
As convoluted as the backdrop seems for the likes of the Dollar, Euro and Pound; there are still options for the studious FX traders. The Canadian Dollar was given a serious charge this past session when the third quarter business sale survey from the Bank of Canada (BoC) showed an significant improvement. The general sentiment figure and lending survey were decidedly less encouraging, but these were reading taken before the breakthrough on the stalled NAFTA negotiations. Now the focus for the Loonie will more likely fall to BoC intent, so the next major update comes from Friday’s inflation update. Meanwhile, the New Zealand Dollar was prompted to a rally of its own with the release of the third quarter CPI (consumer price index) update. The 1.9 percent clip is still a ways from the upper threshold on the Reserve Bank of New Zealand’s (RBNZ) tolerance band for price pressures, but it nevertheless makes the next move decidedly more hawkish rather than dovish. Given the deep discount on the Kiwi these past months and the lack of response from the currency to last week’s risk flush, there is naturally more response to the positive news. I would expect the same for the Australian Dollar moving forward, but there the key event risk comes with the local employment report and third quarter business sentiment survey which will hit the wires at the same time. We discuss all of this and more in today’s Trading Video.
AUD/NZD Daily Chart
If you want to download my Manic-Crisis calendar, you can find the updated file here.
Written by John Kicklighter, Chief Currency Strategist for DailyFX.com
Weekly Short Positions Increase 14% Sparking Bullish Bias
Weekly Net-Long Positions Increase 17%
GBPUSD: Retail trader data shows 57.7% of traders are net-long with the ratio of traders long to short at 1.37 to 1. In fact, traders have remained net-long since Sep 20 when GBPUSD traded near 1.31492; price has remained unchanged since then. The number of traders net-long is 0.7% lower than yesterday and 19.9% lower from last week, while the number of traders net-short is 10.4% higher than yesterday and 14.9% higher from last week.
Having trouble with your strategy? Here’s the #1 mistake that traders make.
GBPUSD Sentiment Suggest That Price Could Rise
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse higher despite the fact traders remain net-long.
— Written by Jake Schoenleb, DailyFX Research
Euro Reversal Eyes Initial Resistance Hurdle
Euro reversed off confluence support last week with the advance now approaching the first major resistance hurdles. Here are the updated targets and invalidation levels that matter on the EUR/USD charts heading into the start of the week. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
EUR/USD Daily Price Chart
Technical Outlook: Earlier this month in my EUR/USD Weekly Technical Perspective we highlighted a key support zone at in Euro at 1.1436/97 (low-week reversal close and the 61.8% retracement of the August advance). Price registered a low at 1.1432 on October 9th with the subsequent rebound faltering just ahead of a key resistance confluence at 1.1617/27 – a region defined by the monthly open & opening-range highs, the 50% retracement of the late-September decline and the 100-day moving average. A breach above this level targets 1.1669 (breakout-zone for the Euro). Initial daily support rests at 1.1529 backed by the monthly low-day close at 1.1491.
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EUR/USD 240min Price Chart
Notes:A closer look at near-term price action shows Euro trading within the confines of an ascending pitchfork formation extending off the October lows. Note that the upper parallel converges on the 1.1617/27 resistance zone and further highlights the technical significance of this region. Initial resistance rests with the median-line (currently 1.1550s) backed by 1.1521/29 with near-term bullish invalidation now raised to 1.1497-1.15.
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Bottom line: EUR/USD is approaching near-term resistance targets which could see prices pullback a bit. From a trading standpoint, look for possible price exhaustion on a rally into 1.1617/27 – the trade remains constructive while above 1.15 with a breach above 1.1669 needed to fuel the next leg higher in price. The October opening-range is set – for now, I’ll favor fading weakness while within this formation. Keep in mind the EU-UK summit is on tap this week as well and may fuel increased volatility in the Euro & GBP crosses.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
EUR/USD Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long EUR/USD – the ratio stands at +1.12 (52.8% of traders are long) – extremely weak bearishreading
- Traders have remained net-long since October 1st; price has moved 0.2% lower since then
- Long positions are7.8% lower than yesterday and 13.5% lower from last week
- Short positions are 5.9% higher than yesterday and 0.3% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Yet traders are less net-long than yesterday & compared with last week andthe recent changes in sentiment warn that the current EUR/USD price trend may soon reverse higher despite the fact traders remain net-long.
See how shifts in EUR/USD retail positioning are impacting trend- Learn more about sentiment!
Relevant EUR/USD Economic Data Releases
Active Trade Setups
– Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at email@example.com
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