Last week’s attention focused mainly on US/China trade talks with the overall positive tone taking US equity markets to all-time highs. Late Friday, President Trump caused the markets some concern stating that there would be internal opposition to the rolling back of tariffs on Chinese goods and that nothing had yet been agreed to.

That comment would set the tone for the new week with immediate pressure on US equity futures as well as USDJPY and JPY crosses. USDJPY would drop from 109.25 to 108.90 while DJ futures showing a drop of 100 points in European trading. XAU would be the main beneficiary rallying from $1,459 to $1,466.

Monday was a holiday of sorts in both the US and Canada with bonds markets in the US closed. However, that did not prevent a day of sporadic activity which began with focus on the UK General election. Nigel Farage, leader of the UK Brexit Party has been looking for an alliance with Boris Johnson’s Conservative Party heading into the election. This has not been forthcoming; however Farage stated that the Brexit Party would not contest the 317 seats the conservatives won at the last election and instead focus on challenging the Labour Party. These comments gave GBP an immediate boost, taking the Pound from 1.2800 to 1.2898. This was enough to drag EURUSD a few spreads higher from 1.1025 to 1.1043.

US equities opened much as expected with the DJ down around 100 points and in quiet trade there she would sit. USDJPY would rally back to 109.10 and XAU would slide down to $1,448.50. Then came a headline that Boeing will re-start delivery of their 737 Max planes in December and should be clear to return to service in January. The Dow erases it earlier loss and turns mildly positive and drags the S&P and Nasdaq off their lows.

FX, however, seems intent on taking an early week nap! And that is effectively where the day ended as the DJ closed higher by 10 points with the S&P down 6 points. EURUSD finishes at 1.1035, USDJPY 109.05 and GBPUSD 1.2850. After a relatively volatile day, XAUUSD ended at $1,455 an ounce.

Feast or famine today. If you weren’t trading XAU or GBP, you probably fell asleep. XAU has come under pressure over the past few sessions as US yields have risen , the 10Y yield heading back towards 2.00% and the USD has strengthened.

As we can see from the daily chart, we briefly broke some key support just above $1,453, hitting a low of $1,448.20. On a North American holiday with thin trading conditions, was this just a short-lived s/l run, or can we expect further weakness ahead? Given the lack of activity in other asset classes, maybe it’s the former. But if not keep an eye on interim support ahead of $1.439 and strong support back to $1,400.

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David Hannigan

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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