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Gold drops 20 dollars from key resistance

Gold chart 08 19

Gold rallied to the 1771.36 level yesterday and after a quick penetration dropped almost $20 per contract. This is why I prefer to focus on a) momentum [here a downtrend] and b) the key resistance levels when the market is trending lower. The market is trading near the bear channel low so it wouldn’t surprise me if we now saw a profit-taking rally (traders exiting their short trades). The nearest key resistance level is at 1759.80 and if the market can penetrate the level decisively I look for a move to the 1765 – 1770 range. Below 1760 I expect gold to trade down to the 1740 – 1750 range. 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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DAX chart 08 19

DAX looks bearish after a rally failed yesterday at 13781. This has resulted in DAX trading outside the bull channel low. This is not a sign of strength but as long as the market trades above the 38.2% retracement level I will have to factor in the possibility of another attempt to push the market higher intraday today. If there’s a decisive break below the retracement level I’ll focus on short trades with my T1 at 13520 and T2 at 13460.

Here’s the bigger picture review from yesterday as it’s still quite relevant. “The German stock market took a much bigger hit yesterday. The index lost three days’ worth of gains in one single day! The sell-off took DAX down to the 13631.50 support level that roughly coincides with the channel low and the 38.2% retracement level and the SMA(50). Such an increase in downside momentum makes it, in my experience, unlikely that the market could rally above the most recent high (13974.40). Therefore, I expect there’s a higher probability that DAX trades down to 13460 or so before it can penetrate the 13974.40 high.”

DJ chart 08 19

Dow (DJ) – Yet another lower daily high was created yesterday. If the market doesn’t take out the supply creating this resistance I look for further weakness in this market (the probability for a correction increases). Another key level I’ll focus on is the 33820. If it breaks then I’ll be looking for a move to the 33500 – 33600 region. If the bulls can push the market above yesterday’s high (decisively) I expect the market to move to 34200 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 US inflation rate for June (YoY) dropped more than expected. The July reading came in at 8.5% after a 40-year high of 9.1% prior. Analyst forecasts had put the number at 8.7%. The cost of energy rose 32.9% (vs. 41.6% in June). Lower cost of petrol (44% vs 59.9%), fuel oil (75.6% vs 98.5%) and natural gas (30.5% vs 38.4%) contributed to the decline. The cost of electricity however increased by 15.2%. Food inflation however increased by 10.9% vs 10.4% prior. 

 The Next Main Risk Events

  • CAD Core Retail Sales m/m
  • CAD Retail Sales m/m

For more information and details see the TIOmarkets economic calendar here

Trade Safe!

Janne Muta
Chief Market Analyst

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