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USD strength pushed gold to the 1691 target

Gold chart 09 15

Gold – Relative strength in the dollar pushed gold down to 1691 after it failed to break decisively above 1705. This is what I expected yesterday (see here). I trust you made some points shorting gold after you saw that the market wasn’t able to defend the levels above the 1705 mark. If you don’t know how to read price action or momentum using candle stick charts join me next week to a free webinar. I’ll show you step by step how you can make better trades using candle stick momentum analysis. Here’s the link. Register now!  The nearest key levels for intraday trading in gold are 1680.90, 1693.60, 1697 and 1707. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

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DJ chart 09 15

DJ was range-bound throughout the day which is not unusual after a massive move like the one we saw on Tuesday. The moves below Tuesday’s low were rejected suggesting there are players who think the market is oversold. If we now get a decisive break above yesterday’s high (31270) the market probably moves to 31670 or so. Alternatively, if yesterday’s low is taken out the market is likely to drift down to 30520. Today’s key risk event is the retail sales data release.

NAS chart 09 15

NAS – Nasdaq was showing signs of relative strength yesterday as the index wasn’t allowed to slip below Tuesday’s low and the NQ/YM spread (the Nasdaq/Dow e-mini futures spread) moved higher throughout the day. This indicates strength for the market as a whole. Nasdaq, however, is range bound just like Dow and needs to break the resistance at yesterday’s high (12170). Then the bulls need to defend the levels above it in order to stage a rally in the technology index. Alternatively, the 12000 support is likely to break. A decisive break would be likely to push the market to the 11917 support.

DAX chart 09 15

DAX – The daily bearish engulfing candle kept Dax weaker than its US counterparts and the index created a lower low and a lower high in the intraday charts. In order to break this bearish intraday pattern, the market needs to muster enough strength to take out the resistance at 13102. A decisive break above the level would change the bearish structure and open a way to 13250. Alternatively, yesterday’s low at 12950 is likely to get violated and would probably take the market to (at least) 12890 and then later on, possibly to 12700 or so.

Macro Drivers for the USD 

As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The Federal ReserveFed hiked the target range again by 75bps (to 2.25%-2.5%). This was the fourth consecutive rate hike. The rate hike was in line with analyst forecasts. The Fed noted that ongoing increases in the target range will be appropriate but the next decisions will be data-dependent.
YieldsThe 10-week range in the US 10-year treasury yield has been from 2.516% to 3.498%. 
EmploymentThe US economy added 258 thousand new jobs. June number was revised from 390K to +384K and the average hourly earnings increased 0.5% (month over month) vs 0.3% predicted by the analysts. Such strong growth in employment and earnings reminds us how strong the US economy still is. 
InflationThe annual inflation dropped to 8.3% in August (vs. 8.5% in July). This was the lowest reading in 4 months but higher than forecasts of 8.1%. The cost of energy increased 23.8%, (32.9% in July). Cost of petrol eased to 25.6% vs 44% in July and inflation for food increased by 11.4% (the most since 1979).

 The Next Main Risk Events

  • USD Core Retail Sales  
  • USD Empire State Manufacturing Index
  • USD Retail Sales  
  • USD Philly Fed Manufacturing Index
  • USD Unemployment Claims
  • CNY Retail Sales 
  • GBP Retail Sales  
  • USD Prelim UoM Consumer Sentiment
  • USD Prelim UoM Inflation Expectations

For more information and details see the TIOmarkets economic calendar here

Trade Safe!

Janne Muta
Chief Market Analyst

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