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Gold May Surrender on Lockdowns, Vice Presidential Debate, Fiscal Stimulus Stalemate

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Gold Fundamental Outlook: Bearish

  • Gold prices could fall if lockdown policies hurt economic growth and inflation prospects
  • Ongoing US fiscal stimulus talks adding additional uncertainty to US political landscape
  • First vice presidential debate may push XAU/USD higher if Kamala Harris outperforms

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Coronavirus Spike Pressuring Lawmakers to Extend or Reimpose Lockdowns

Coronavirus cases continue to rise not only in the United States – the epicenter of Covid-19 – but also around the world, prompting governments to reimpose or extend economically-crippling lockdown policies. While economic data and financial markets swiftly recovered after both cratered in March, the initial rally appears to now be fizzling out as the effects of the stimulus measures that arguably propelled it to these levels wane.

Covid-19 cases now stand at a little over 1 million, and protestors are starting to erupt. This is not only due to social turbulence – e.g. race relations, a topic of the first US presidential debate – but also from citizens who oppose extended and stricter shelter-in-place orders. Measures that contain the virus may come at the cost of revived economic activity, risking an extended and bumpy recovery.

Inflation expectations are reflecting a more pessimistic view of price growth after surging from March through late-July/early-August. Not entirely by coincidence, gold – an anti-fiat hedge – also spiked in part from expectations of rising price growth but also from a weaker US Dollar. However, with this dynamic now wilting, demand for the precious metal may be substituted for highly-liquid havens like the Greenback.

Fiscal Stimulus Stalemate May Rattle Confidence

Another factor that may cause investors to scuttle away from gold and into caves of comparatively less-risky assets is the ongoing statement between Republicans and Democrats over another stimulus package. The cost of the negative externality of bipartisan intransigence is being incurred by investors and economists who fear that without additional aid, economic activity may sharply contract.

Democrats are looking to put through a $2.2 trillion stimulus package with some provisions to make it palatable for their colleagues across the aisle. Having said that, reconciling the Trump administration’s stance on not going above approximately $1.6t for another stimulus package may be a stalling point that spoils risk appetite. In that scenario, gold prices may retreat if risk aversion ensues.

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Vice Presidential Debate May Catalyze Market Volatility

Market volatility may also be amplified by uncertainty about the outcome of the first vice presidential debate on October 7. Senator Kamala Harris will be going up against Trump’s vice Mike Pence with Washington Bureau Chief for USA Today Susan Page as the moderator of the debate.

If the outcome of the debate swings more in Ms. Harris’ favor, based on previous analysis, it could help lift market mood if it increases Biden’s popularity. In the coming weeks, political uncertainty as it relates to the 2020 election may continue to weigh on sentiment, potentially endangering gold prices from retesting their all-time high at 2075.14.

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— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or@ZabelinDimitrion Twitter





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Forex

Investors Flock to Yen’s Safe-haven Appeal

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USD/JPY ANALYSIS

Early this morning, the Japanese Yen (JPY) appreciated significantly against the US Dollar as stimulus hopes faded once more. The crucial relief package that has been the center of global markets of recent has diminished its pre-election potential on November 3. This comes after delayed negotiations over stimulus specifics.

The result has been a global risk-off mood as reflected in the shift towards the traditional safe-haven currencies (JPY and CHF). Upcoming elections will likely favour the Yen as volatility is expected to increase along with the rise in COVID-19 cases in Europe and the US. This being said, the uncertainty present around the aforementioned factors could limit Yen strength.

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USD/JPY TECHNICAL ANALYSIS

USD/JPY weekly chart:

USD/JPY weekly chart

Chart prepared by Warren Venketas, IG

The multi-year descending triangle (black) above shows price action testing lower support at the 105.00 psychological level. With fundamental tailwinds behind the Yen, further downside for the pair could take place over the next few weeks which will support the bearish continuation precept of the descending triangle pattern.

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USD/JPY daily chart:

USD/JPY daily chart

Chart prepared by Warren Venketas, IG

The daily chart suggests USD/JPY approaching oversold territory (represented by the Relative Strength Index (RSI)) which could provide short term relief for bulls with 105.00 the near-term resistance target.

The 104.00 September swing low may likely see the next area of support for bears and consequently the 100.90 50% Fibonacci level should 104.00 not hold.

IMMINENT JAPANESE INFLATION FIGURES COULD INCITE BOJ INVOLVEMENT

The Bank of Japan (BOJ) has stated that they are keeping a close eye on the strengthening Yen and its potential impact on inflation. Bank of Japan Deputy Governor Masazumi Wakatabe has not taken further rate cuts off the table. The reasoning from the central bank is simply cost-benefit analysis whereby the benefits of further easing (if required) exceeds the cost.

Later today, the Japanese inflation rate for September (YoY) will be released at 23:30GMT. Inflation expectations by analysts are sustained pressure which could prompt BOJ intervention and measures regarding the appreciating Yen.

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USD/JPY: KEY POINTS TO CONSIDER MOVING FORWARD

The USD/JPY is largely at the mercy of global factors – primarily impending US elections. Clarity on the election should provide market participants with some directional bias going forward. The coronavirus is still a driving force behind Yen strength and will continue to do so until such time as a vaccine silver lining presents itself.

Key points to consider:

  • 105.00 and 104.00 key horizontal levels
  • Descending wedge pattern
  • Expected rise in volatility

— Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas





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Gold Battles with Resistance, Silver Respects Supportive Trend

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Gold (XAU/USD) and Silver (XAG/USD) Analysis, Prices and Charts

  • Gold is trying to overcome moving average resistance.
  • Silver breaks pennant formation to the upside.

Gold continues to print fresh short-term higher lows and the precious metal is currently trapped between the supportive 20-day simple moving average (sma) at $1,905/oz. and resistance off the 50-day sma around $1,921/oz. A break to the downside exposes $1,882/oz. while a break higher will see the 23.6% Fibonacci retracement at $1,928/oz. and the one-month high at $1,934.5/oz. come into play. The CCI indicator suggests that gold is overbought for the first time since early August.

Gold Daily Price Chart (March – October 22, 2020)

Gold Battles with Resistance, Silver Respects Supportive Trend



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily 1% -9% -1%
Weekly -4% 10% -1%

IG retail trader datashow 79.05% of traders are net-long with the ratio of traders long to short at 3.77 to 1.The number of traders net-long is 0.11% lower than yesterday and 4.13% lower from last week, while the number of traders net-short is 9.59% lower than yesterday and 8.29% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall.Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Gold trading bias.

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The short-term supportive trendline continues to guide silver higher, with the 20-day sma acting now as secondary support. We noted the pennant formation nearing its apex at the end of last week and the subsequent break higher now suggests that silver may have more room to run. The 50-day sma at 25.41 is the first level of resistance followed by the multi-week high off the indecision doji at 25.60. Above here a cluster of prior highs between 27.00 and 27.70. To the downside, trend support at 24.50 ahead of 20-sma at 24.26 and 23.56.

Silver Daily Price Chart (March – October 22, 2020)

Gold Battles with Resistance, Silver Respects Supportive Trend



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -2% -3% -2%
Weekly -5% 6% -4%

IG retail trader data show 86.03% of traders are net-long with the ratio of traders long to short at 6.16 to 1. The number of traders net-long is 3.12% lower than yesterday and 7.86% lower from last week, while the number of traders net-short is 15.12% higher than yesterday and 17.39% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Silver 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 Silver price trend may soon reverse higher despite the fact traders remain net-long.

What is your view on Gold andSilver – are you bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.





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EUR/USD, EUR/JPY Key Levels, Risk of Setback

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EUR/USD, EUR/JPY Price Analysis & News

  • EUR/USD Driven to Rich Levels by Chinese Yuan
  • EUR/JPY Vulnerable to Setback Towards 123.00

This week has seen a remarkably firm Euro as markets continued to price in a democrat sweep, which has largely been characterised by short USD trades. However, aside from the US election, factors that had supported the Euro have begun to the fade with headwinds facing the currency beginning to rise. That said, this hasn’t entirely been reflected in the price with the Euro trading at 1-month highs.

Reasons for Concern in the Euro

Interest rate differentials have been moving in favour of the USD since August with the 10yr spread widening more aggressively since the back end of September. Alongside this, as inflation risks for the Eurozone remain heavily tilted to the downside, expectations are being built in the that the ECB could look for a fresh round of stimulus by the end of the year. As such, focus will be on next week’s ECB meeting, which may lay the groundwork for policy action in December.

EUR/USD (Black) vs German/US 10yr Spread (Red)

Euro Forecast: EUR/USD, EUR/JPY Key Levels, Risk of Setback

Source: Refinitiv

Second wave of COVID cases across Europe is evident with several countries forced to renew lockdown measures, thus growth differentials look to also move in favour of the US over the Eurozone. In turn, tomorrow’s PMI readings will be of interest as they will take into account lockdown measures that have taken place in October. That said, the Euro looks to be trading at slightly rich levels against its major counterparts and thus remains vulnerable to set backs.

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EUR/USD Driven to Rich Levels by Chinese Yuan

EUR/USD: A factor behind the notable support for the Euro has been the Chinese Yuan going from strength to strength, as such, a slowing in the appreciation of the Yuan can be enough to curtail upside in the Euro. On the topside, resistance resides at 1.1900-15, where a break above opens the door to 1.1940-50. Initial support sits at 1.1830 (Oct 9th peak) with a move below opening the doors to 1.1790-1.1800. Sizeable option expiries between 1.1800-1.1900 could see the spot price remain within this range.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily 4% 7% 6%
Weekly -17% 22% 7%

EUR/JPY Vulnerable to Setback Towards 123.00

EUR/JPY: In light of the factors mentioned above, risks appear tilted to the downside in the cross with a move towards 123.00 on the cards. Once again the 50DMA (124.62) held firm after another failed attempt at piercing through, which in turn puts the focus on the 100DMA at 123.50. Below the 100DMA exposes psychological support at 123.00, marking the Oct 2nd and 15th bottom.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -2% -16% -12%
Weekly -38% -3% -18%

10 Most Popular Candlestick Patterns





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