A strong move lower in the US Treasury yields and a rally in gold confirmed the views we have held on both asset classes for some time now. We have been bullish on gold and bonds (expecting yields to drop). We said yesterday that gold was well-positioned for a rally as yields were likely to move lower and the military tensions in eastern Ukraine are likely to increase safe-haven buying. See yesterday’s Bullish & Bearish Markets video for more details. Gold has rallied about $20 since the time of our analysis and is now trading at a key resistance level (1764.26).  By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.

The US has placed sanctions on Russia’s sovereign debt. This move wasn’t the nuclear option yet as it targets only the primary market. The secondary market remains an ace in the sleeve and reminds Russia that there are even harsher options available for the US. These sanctions make the potential financiers reconsider their investments in the Russian sovereign debt and introduce new rules of engagement to the relationship between the US and Russia.

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We also pointed out in this week’s video that EURUSD was trading at levels where supply might increase as profit-taking after the rally could start to come in. This is indeed what happened. EURUSD couldn’t hold the levels above 1.1990 and has been trading lower since then. 

Highly USD favourable data from the US yesterday strengthened the dollar. The core retail sales exceeded analyst expectations by over 3% (8.4%, 5.1% expected) while the headline number was 4% above the consensus estimate (9.8%, 5.8% expected). The Philly Fed Manufacturing Index was also a massive positive surprise. The index value was confirmed at 50.2 vs. 41.0 expected, while the unemployment claims were also a positive surprise at 576K (703K expected). 

China’s strong GDP (18.3% vs. 6.5% previous) and retail sales numbers (34.2% vs. 28.0% expected) confirmed that the country is recovering well from the pandemic. However, the base effect plays a significant role here as the year-ago numbers were dismal due to the pandemic. The last significant risk even for this week is the US Preliminary UoM Consumer Sentiment release later today. For more details on macroeconomic releases see our economic calendar

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EURUSD started to lose momentum inside the confluence zone highlighted by us earlier this week. Yesterday’s down day is a clear indication that some institutional profit-taking was triggered after the pair hit the 1.1990 resistance. This was helped by the strong data from the US that favoured the dollar. Now the nearest key support and resistance levels are 1.1927 and 1.1990. For more details and analysis see this week’s analysis video here.

GBPUSD tested our confluence area twice (yesterday and the day before) and failed to even move into the zone. This created a rejection candle in the daily chart and the dollar positive data yesterday has intensified the sell-off. Now the pair seems to be creating a lower swing high which obviously is bearish. The nearest key support and resistance levels are 1.3670 and 1.3808. Cable is trading inside a bearish price channel but in order to continue the trend, the bears need to clear the confluence zone at 1.3640 – 1.3670 (38.2% Fibonacci retracement level and a recent reactionary low). If we find that the 1.3670 support is defended and the pair created a higher swing low above it then the likelihood of the market pushing above the bearish channel would increase.

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The price of gold continues to rally as Treasury yields drop. On the technical side, we have been focusing on the breakout from the bullish wedge and a double bottom created on highly important support. Now gold is working its way through our confluence zone and is battling a major resistance level at 1764.26. The price is creating higher lows and higher highs which is healthy bullish behaviour. If this resistance is cleared the next significant resistance level can be found at 1816, while the nearest key support levels are at 1723.70 and 1757.30. For more details and analysis see this week’s analysis video here.

Recent macroeconomic data releases

  • Australian Employment Change 70.7K, 35.2K expected
  • Australian Unemployment Rate 5.6%, 5.7% expected
  • US Core Retail Sales 8.4%, 5.1% expected
  • US Retail Sales 9.8%, 5.8% expected
  • US Philly Fed Manufacturing Index 50.2, 41.0 expected
  • US Unemployment Claims 576K, 703K expected

Important macroeconomic data releases today

  • Chinese GDP 18.3%, 18.3% expected
  • US Preliminary UoM Consumer Sentiment 88.9 expected

For more details, see our economic calendar here.

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Janne Muta
Chief Market Analyst
TIOmarkets.com

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