Gold reaches $1180 a few weeks early

Financial Mirror (Cyprus) - - FRONT PAGE -

The Eu­rodol­lar un­ex­pect­edly en­tered a cor­rec­tion pe­riod last week. Fears over the FOMC Min­utes re­lease be­ing per­ceived as dovish en­cour­aged USD weak­ness. The Fed­eral Re­serve con­tin­ued to refuse to drop a hint re­gard­ing a po­ten­tial time­frame to raise rates, while also chang­ing its bias slightly by sug­gest­ing a higher val­ued USD would im­pact US in­fla­tion lev­els. As a re­sult, the EURUSD ap­pre­ci­ated.

The up­com­ing week might not be high in quan­tity with EU eco­nomic re­leases, how­ever the spot­light will re­main on Ger­many. On Tues­day the lat­est Ger­man ZEW Survey is re­leased, with in­vestors look­ing for fur­ther clues re­gard­ing whether Ger­many could be head­ing to a re­ces­sion. On Wed­nes­day, Ger­man in­fla­tion data for Septem­ber is re­leased. Data over the past month or so has alarmed econ­o­mists. Dis­ap­point­ing eco­nomic re­leases have in­cluded an un­ex­pected man­u­fac­tur­ing con­trac­tion along­side a de­cline in fac­tory or­ders, and im­port/ex­port data. If this re­sults in a slow­down in Ger­man CPI lev­els, in­vestors might be­gin pric­ing in ac­tion from the ECB.

Look­ing at the tech­ni­cals, the EURUSD has found it­self back inside its bear­ish chan­nel after a false break­out lower. A tech­ni­cal strate­gist could sug­gest that the cor­rec­tion pe­riod last week might be a prepa­ra­tion for the next Eu­rodol­lar leg lower. If EU eco­nomic data con­tin­ues to in­spire down­side Eu­rodol­lar move­ment, the pair can now move lower with­out break­ing out of its tech­ni­cal pat­tern.

Support lev­els can be found at 1.2576 and the cur­rent yearly low, 1.2499. If the EU eco­nomic sen­ti­ment un­ex­pect­edly im­proves and en­cour­ages Eu­rodol­lar pur­chas­ing, po­ten­tial re­sis­tance can be found around 1.2742 and 1.2790.

The Cable strug­gled to find any di­rec­tion last week, al­ter­nat­ing be­tween a bullish and bear­ish sen­ti­ment. USD weak­ness en­cour­aged the pair to make it up to 1.62 but just as I thought the bulls might be tak­ing con­trol, an un­ex­pected slow­down in UK Con­struc­tion Out­put en­cour­aged down­side move­ment. The Bank of Eng­land (BoE) had pre­vi­ously warned the UK would en­ter slightly weaker eco­nomic growth in Q3, with the dis­ap­point­ing con­struc­tion data pro­vid­ing some va­lid­ity to those claims. Var­i­ous com­ments from Chan­cel­lor George Os­borne sug­gest­ing that the EU eco­nomic prob­lems pose the largest threat to the UK econ­omy may have also weak­ened GBP in­vestor ap­petite.

This week, there are two pieces of high risk eco­nomic news – in­fla­tion data and an em­ploy­ment re­port. On in­fla­tion, Business Sec­re­tary Vince Cable at­tracted head­lines re­cently for sug­gest­ing that the GBP was over­val­ued by 10% and this was hav­ing a detri­men­tal im­pact on CPI lev­els. The BoE has a long stand­ing thresh­old 2% in­fla­tion tar­get to con­sider a rate rise and if UK in­fla­tion un­ex­pect­edly de­clines, bear­ish move­ment in the GBP is likely.

On Wed­nes­day, the lat­est em­ploy­ment re­port is out. The UK em­ploy­ment sec­tor has sur­passed ex­pec­ta­tions for some time but within the past two weeks, both man­u­fac­tur­ing and con­struc­tion data have dis­ap­pointed. If th­ese emerg­ing in­di­ca­tions of a po­ten­tial slow­down in fun­da­men­tals have a detri­men­tal im­pact on UK business hir­ing, the GBP will be sub­ject to vo­latil­ity.

From a tech­ni­cal stand­point, this pair con­tin­ues to find it­self inside the same wedge pat­tern it has been fol­low­ing for the past few months. If the pair moves to the up­side, we might ac­tu­ally break­out of this pat­tern. In which case, re­sis­tance can be found at 1.6180 and 1.6225. How­ever, if the pair is go­ing to con­tinue fol­low­ing the di­rec­tion of the wedge pat­tern, a move to the down­side is re­quired. If CPI dis­ap­points, there is high po­ten­tial for bear­ish move­ment in the Cable. GBPUSD support lev­els can be found at 1.6008 and the cur­rent yearly low, 1.5915. Oc­to­ber’s US Non-Farm Pay­roll re­lease, Gold de­clined and hit the $1180 tar­get a few weeks ear­lier than pre­vi­ously fore­cast. Fears over a po­ten­tially dovish FOMC Min­utes re­lease on Wed­nes­day evening en­cour­aged a re­ver­sal though, with Gold ap­pre­ci­at­ing by $40 within a few days. Im­pres­sive Ini­tial Job­less Claims soft­ened Gold’s pro­gres­sive mo­men­tum.

De­spite po­lit­i­cal un­rest in Hong Kong and airstrikes in the Mid­dle East, Gold con­tin­ues to be trad­ing in ac­cor­dance with US eco­nomic news. There­fore, in­vestors should keep an eye on US Small Business Con­fi­dence (Tues­day), Ad­vance Re­tail Sales (Wed­nes­day) and Ini­tial Job­less Claims (Thurs­day).

As re­gards tech­ni­cal ob­ser­va­tions for Gold on the Daily time­frame, the blue support level high­lighted on the chart above rep­re­sents where the “triple bot­tom” was formed. Although a re­ver­sal might have com­menced al­ready, I still see the po­ten­tial to re-test the low to­wards the end of Oc­to­ber – around the same time the Fed­eral Re­serve of­fi­cially con­clude QE.

Support can be found at $1214, $1207 and $1200. If the re­cent ap­pre­ci­a­tion is to con­tinue, re­sis­tance is lo­cated at $1234 and $1242.

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