December Gold Poised to Test Major Obstacle at $1215.00
December Gold surged to the upside on Friday, finishing the
week in a strong position as traders bought the metal as a hedge against a
potential drop in the equity markets and because of the weakness in the Dollar.
The close put the market in a position to test a major 50%
price level at $1215.00. This price represents a retracement of the $1270.60 to
$1159.30, June to July sell-off. After briefly piercing a downtrending Gann
angle at $1212.60 today, the market settled back indicating there may be
sellers up here. This is also a sign that more sellers may show up once the
market completes the 50% retracement. Long traders should watch for a technical
bounce at this level. The chart pattern suggests there may be a pull-back to
$1186.30 sometime next week.
The strong surge in the September T-Notes and T-Bonds is an indication
that investors are betting on new language in the Fedâ€™s policy statement
following next weekâ€™s August 10 meeting.
Investors expect the Fed to change the language it has been
using to describe the length of the current economic slow down. In addition,
investors are looking for the Fed to announce the renewal of its asset buyback
Iâ€™ve said this a countless number of times, but Iâ€™ll say it
again, the bonds are the best indicator for the economy. As long as the
Treasuries continue to maintain their higher-top, higher-bottom formation, look
for the economy to remain weak.
Stocks were under pressure since the release of the jobs
data early this morning. The markets sold off as the news was what not what
investors expected, however, the ability to hold the markets in a range most of
the day indicates that it was only disappointing and not earth-shattering.
Despite trading lower on Friday, the markets managed to hold
on to their gains for the week. The rally, however, does appear to be running
out of steam.
The September Euro made a new high for the week on Friday,
driven by disappointing U.S.
jobs data. The rally through the former top at 1.3262 resumed the uptrend while
forming a new swing bottom at 1.3119 in the process.
This morning the U.S. government released
disappointing jobs data which solidified the thought that the economic recovery
was stalling. The report which said private employers added fewer jobs during
July than forecast, raised concerns amongst investors about the sustainability
of the U.S.
The disappointing non-farm payrolls data will most likely be
used by Fed officials next week when they set monetary policy. The weaker jobs
number will most likely mean the Fed will announce stimulus measures to help
revive the economy which may include renewing its quantitative easing program.
Improvements in the Euro Zone economy at a time when the U.S.
economy is still struggling makes the Euro a more attractive investment. Upside
momentum indicates the Euro has enough buying power behind it to reach the 50%
level at 1.3510 over the near-term.
Earlier this week the European Central Bank monetary policy
committee voted to leave its benchmark interest rate unchanged the historically
low 1% level. This move was unanimously expected by traders.
Following the release of the interest rate decision, ECB
President Trichet noted that the European bank stress tests completed since the
last meeting have helped increase transparency and fueled a move toward
restoring market confidence in the banking sector.
In the wake of recent strong Euro Zone economic data,
analysts had expected Trichet to outline an exit strategy or discuss the ECBâ€™s
plan for its special liquidity provisions. In other words, is the ECB going to
continue to provide free-flowing liquidity to the market or begin to withdraw
it. Trichet indicated the ECB would consider this action on that next month.
Trichet failed to say anything really bullish about the
Euro, but actually may have helped limit gains by stating that the second half
of 2010 was likely to be â€śmuch less buoyantâ€ť than the second quarter because of
the implementation of new financial austerity measures. He also added that it
was too early to â€śdeclare victoryâ€ť in the economic crisis.
Based on Trichetâ€™s comments, the Euro is most likely to
continue to be driven by economic news regarding the U.S. economy. At this time, the ECB
seems a little more upbeat about the Euro Zone economy while the U.S. Fed is
being encouraged to consider the renewal of its quantitative easing program to
ward off a potential double-dip recession. As long as the U.S. economy remains weak and
interest rates low, look for the Euro to remain firm.
The situation is not all rosy for the Euro however. Many of
the recent improvements in the Euro Zone economy have taken place before
financial austerity measures were in full effect. Furthermore the ECB is still
providing stimulus. Like the U.S.,
consumer spending will be the key to sustaining the recovery. If consumers
decide to pull in their purse strings at a time when the government is cutting
spending, then the economies in the Euro Zone may come to a screeching halt.
Aside from the disappointing U.S.
jobs data report, the biggest surprise was the loss of jobs in Canada.
Throughout the entire global recession, the talk of the town has been Canada
and how the country avoided a prolonged recession and banking crisis.
The September Canadian Dollar traded sharply lower due to an
unexpected decline in the Canadian jobs market. The news out of Canada
reflects its first job losses of the year.
Fridayâ€™s Canadian jobs report showed that the economy lost
9,300 jobs in July while the unemployment rate unexpectedly rose to 8 percent
from 7.9 percent. Analysts had predicted an increase of 15,000 jobs after a
strong gain of 93,200 in June.
The Canadian Dollar fell on the bad jobs data as traders
speculated the weakening U.S.
economy would have an adverse affect on the Canadian economy going forward.
Based on the drop in yields and the rise in Canadian bond
prices, investors are beginning to price in the possibility that the countryâ€™s
recovery from the recession is starting to cool and could encourage the Bank of
Canada to refrain from additional interest rate hikes over the near-term.
Traders should continue to focus on the weak U.S.
economy as the main catalyst behind the movement in the currency markets. With
interest rates expected to continue to remain low for a prolonged period of
time and the Fed expected to remain dovish on the economy, continue to look for
a weaker U.S. Dollar.
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Tue 17 July 2018 AA 08:30 GB- Employment A 13:15 US- Industrial Production AA 14:00 US-Powell Testimony Wed 18 July 2018 AA 08:30 GB- CPI A 12:30 US- Housing Starts/Permits AA 14:00 US-Powell Testimony Thu 19 July 2018 AA 1:30 AU- Employment AA 08:30 GB- Retail Sales A 14:30 US- EIA Crude A 12:30 US- Weekly Jobless Fri 20 Jun 2018 A 12:30 CA- CPI/Retail Sales
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