Fundamental Forecast for Gold: Neutral
Gold prices inched higher this week with the precious metal up nearly 0.30% ahead of the New York close on Friday. The gains come amid continued strength in U.S. equity markets with the S&P 500 pressing higher for a third consecutive week. A newfound weakness in the US Dollar has continued to put a floor under gold prices with the DXY down nearly 0.7% this week.
FOMC Rate Decision Takes Center Stage
It was a quiet week for economic data but things pick up next week with central bank rate decisions from the FOMC, the ECB (European Central Bank) and BoJ (Bank of Japan) on tap. The Federal Reserve is widely expected to hike the benchmark interest rate by 25 basis points and the focus will be on the updated economic projections as they pertain to growth, employment and inflation. For gold, a hawkish tone from the central bank could weigh on demand for non-yielding assets like gold. However, with growing concerns regarding a mounting global trade war, Fed Chair Jerome Powell & Co may leave the door open for a more gradual normalization process if the dot plot reaffirms expectations for just one more hike this year- such a scenario would likely be bullish for gold,
North Korean Summit – The “X” Factor
Further highlighting event risk next week will be the highly anticipated meeting between President Trump and North Korean Leader Kim Jong Un for the Nuclear Summit- an X factor for traders that could be a big driver of near-term risk sentiment (depending on how things go). For gold, these events have the potential to fuel a break of a multi-week range in price. Keep in mind that despite all the volatility seen in prices in 2018, bullion is down just 0.5% year-to-date and from technical standpoint, we’re looking for a breakout a near-term consolidation range to offer guidance.
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Spot Gold IG Client Positioning
- A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +3.93 (79.7% of traders are long) –bearishreading
- Long positions are 2.3% lower than yesterday but1.2% higher from last week
- Short positions are 5.9% higher than yesterday and 5.7% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week and the recent changes in sentiment warn that the current Spot Gold price trend may soon reverse higher despite the fact traders remain net-long.
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Gold Weekly Price Chart
Gold prices have continued to trade in a contractionary range just below yearly open resistance at 1302 with support eyed at the 61.8% retracement of the December advance at 1285. A weekly close below this level targets longer-term upslope support around ~1255 backed closely by the 50% retracement of the late 2016 advance at 1245.
Bottom line: It’s make-or-break at these levels and we’re looking for a breakout of this range heading into next week. Note that the last few times that weekly RSI has fallen to these levels, price has recovered and adds further significance to the current momentum profile. For a complete technical breakdown of the near-term Gold price levels (daily & intraday), review this week’s XAU/USD Technical Outlook.
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—Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michaelon Twitter @MBForex or contact him at email@example.com
Demand for Safe Havens Weakens as Market Sentiment Improves
Safe haven prices, news and analysis:
– Confidence is returning to financial markets, lessening the demand for safe-haven assets.
– However, the recovery is precarious and they could soon be back in favor.
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Market sentiment picks up
Indications that China’s central bank is looking to ease monetary policy are offsetting the continuing concerns about a US-China trade war, lifting market sentiment and prompting investors to move out of safe-haven assets into those seen as more risky and therefore potentially more profitable.
Prices of all the traditional safe-havens, including the Swiss Franc, the Japanese Yen, Gold, US Treasuries and German Bunds, are weakening Wednesday although many hurdles remain, including the possibility that the trade wars could flare up again.
Looking at these individually, USDJPY rose modestly Wednesday after three successive days of falls and the uptrend in the pair remains in place.
USDJPY Price Chart, Daily Timeframe (Year to Date)
Similarly, USDCHF is rallying and it too remains in an uptrend.
USDCHF Price Chart, Daily Timeframe (Year to Date)
The price of Gold continues to fall and is now down from a high of $1,365.36 per ounce on April 11 to $1,272.17 although any return of risk aversion would slow its decline. The yield on the benchmark US Treasury note – which moves inversely to its price – has increased from a low of 2.77% on May 29 to 2.90% and the yield on the 10-year German Bund is up from 0.255% to 0.367% over the same period.
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— Written by Martin Essex, Analyst and Editor
Most Asian Shares Rise, Sentiment Better. ASX 200 Tests Breakout
Asian Stocks Talking Points:
- Most Asian shares recover as trade war worries settled down, anti-risk Yen fell
- Next, markets eye a central bank panel with commentary from important officials
- ASX 200 is testing a breakout, opening the door to a resumption of its uptrend
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As expected, Asian shares took a breather from yesterday’s aggressive selloff which was sparked by increased trade tensions between the US and China. A lack of updates as traders await further escalation allowed some stock markets to consolidate.
BACKGROUND: A Brief History of Trade Wars, 1900-Present
In Japan, the Nikkei 225 rose more than 0.30 percent by Wednesday afternoon trade. Most of the gains were from the telecommunication services and health care sectors. Chinese shares were held down though with the Shanghai Composite falling about 0.60 percent. Australia’s ASX 200 climbed, pushed higher by financials and information technology. The KOSPI pulled ahead, rising more than one percent.
On the FX side of things, the lull in trade war rhetoric diminished demand for safe havens. The anti-risk Japanese Yen was cautiously lower while the sentiment-linked Australian and New Zealand Dollars appreciated.
From here, aside from updates on tariff retaliations, all eyes will be on a central bank policy panel that takes place in Sintra, Portugal. We will get commentary from Fed’s Jerome Powell, ECB’s Mario Draghi, RBA’s Philip Lowe and BoJ’s Haruhiko Kuroda.
Amidst last week’s monetary policy announcements from the Fed and ECB, speeches from Mr. Powell and Mr. Draghi can arguably have more potential for FX volatility. If the Fed Chair reiterates last week’s hawkish tone while the ECB President sticks to a more dovish one, then we may see some US Dollar gains at the expense of its European counterpart.
ASX 200 Technical Analysis: More Gains Ahead?
On a daily chart, Australia’s ASX 200 was stuck right below immediate horizontal resistance levels as of Tuesday’s close. These are a combination of the January, May and current June highs between 6,158 and 6,149. However, as of today’s cooldown in trade war fears, the index is attempting a push to the upside for a new 2018 high.
This opens the door to more gains in the coming days as the ASX 200 resumes its uptrend from early April. From here, a push above resistance exposes the 50 percent midpoint of the Fibonacci extension at 6,202 followed by the 61.8% level at 6,264. On the other hand, a turn below if resistance holds places the 23.6% extension as the first target at 6,064. Under that, the index faces a near-term rising support channel going back to late-May.
ASX 200 and other equities Trading Resources:
— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
USD/JPY Could Be Set To Bounce
JAPANESE YEN TECHNICAL ANALYSIS TALKING POINTS:
- The Japanese Yen has seen broad gains against its developed market peers
- However, its overall downtrend remains in place in many cases
- This week could see it reasserted
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The Japanese Yen has caught a quite strong haven bid this week as trade tensions between China and the US bubble back to the surface of market concerns once again.
Technically speaking however, US/JPY has tested the bottom of a minor uptrend channel which has been in place since May 30. It has survived, just but in any case the broader, longer uptrend which has bounded trade all through the year’s second quarter remains very much in place.
The Japanese Yen remains under considerable fundamental pressure from widely diverging interest-rate differentials with the US. The Federal Reserve has just raised interest rates once again and seems determined to continue the process for as long as the data allow. The Bank of Japan meanwhile has been forced to watch the modest inflation resurgence seen early this year collapse, taking with it any prospect that its own ultra-loose monetary policy can be unwound anytime soon.
This week’s official Japanese inflation numbers are likely to underscore that weakness and may put the Yen under renewed pressure, provided that no more bad news appears on market radar from the direction of global trade. Another bout of Yen weakness could see USD/JPY back up to its recent highs of 110.74 in quite short order. That said a return to late May’s peaks in the mid 111s seems unlikely unless some clear resolution to trade difficulties is seen- an unlikely short term prospect.
Reversals for the pair are likely to find support at this week’s 109.49 lows, with the broader channel base of 109.20 waiting below that.
The Japanese Yen’s haven bid has been pretty universal, with the Australian Dollar a particular target. AUD/JPY has been returned to the lows of late May which had not previously been seen since November, 2016.
The cross is now skirting 50% Fibonacci retracement of its long climb up from the lows of mid-2016 to the highs of September, 2017. That comes in at JPY81.40 and seems to be failing. A weekly close below that level would probably bring the next, 61.8% retracement into Aussie bear’s sights. That comes in some way below the market at JPY79.54.
Worryingly for Australian Dollar bulls the currency does not yet look notably oversold, judging by the cross’ Relative Strength Index, and it is likely that momentum to the downside has yet to dissipate.
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Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.
— Written by David Cottle, DailyFX Research
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