Fibogroup Market Analysis 2017

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Hi all
Today, The Australian Dollar received a modest boost after October’s consumer inflation expectations survey saw a larger portion of participants concerned about price increases.

 

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The gold price in on track today to rack up its 5th straight day og gains and from a technical position we can see on the chart that in each of the previous 5 sesions, gold has nanaged to break through a previous, support or resistance level.

As long a there is no sell off later in the trading session today, it is hard to see why gold can’t movu towards the next resistance level which is around $1,307 although their might be some slight resistance at the phsychlogical level of $1,300.

Yesterday’s Fed minutes meeting was good for gold as there tone of voice pretty much garanteed a rate hike in December which takes away the uncertainty of will they or won’t they and we now believe that a rate hike is already priced into gold at around these levels.

The other main uncertainty now is weather North Korea is going to launch any more missiles over the coming days qwhich should also help to support gold.

 

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As we said yesterday, the possibility that gold would run into resistance at the $1,300 level has eventuated but the overall picture looks good so far in today’s trading as the price has remained above yesterdays close.

We think that it may take a couple of trading sessions to finally break back through the $1,300 mark with the next resistance level at $1,308.

There is the chance that traders may take some profits before the weekend comes although the possibility that investors would want to take a position in gold before the weekend is higher as over the last 2 month sit seems that major events that triggered a rise in the gold price were happening on weekends when markets were closed.

One such event may be the decision by the Prime Minister of Spain Mariano Rajoy who gave the Catalan leader Carles Puigdemont until 10am next Monday morning to clarify his situation on whether he has declared independence and if so, his government will be forcibly removed from office.

 

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The Australian dollar is directionless today after 2 days of movement, but may have received some new found support after doubts one again hang over the US Federal Reserve’s ability to lift interest rates this year.

Inflation numbers once again hit the market below expectations and still sit well below the Fed’s target rate, and as we have heard from Fed President Janet Yellen many times this year, she expects inflation will finally hit the Fed’s target rate as we enter into next year,

“My best guess is that these soft readings will not persist, and with the ongoing strengthening of labour markets, I expect inflation to move higher next year,” noted Yellen

“Most of my colleagues on the interest-rate-setting Federal Open Market Committee agree.”

If we look at the real picture though, is it really a good time for the Fed to lift interest rates in this environment?

They have been promising for over a year now that inflation will finally hit their target rate (Hasn’t happened) and so why do we have to believe that this will happen early next year.

There is also the standoff between North Korea and the US with the situation getting worse by the day and who knows when this could explode.

The supposedly strong labour market was stopped in its tracks last month with the economy losing 33 thousand jobs with the Fed also saying that this was a temporary situation.

It seems with all of these assumptions, and no evidence, the Fed should hold off raising rates for now instead of installing fear into the market, and this should benefit the Australian dollar.

 

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The British pound is under further pressure today on the back of Disappointing wage growth figures and follow on from yesterday’s CPI numbers which failed to impress the market.

Bank of England governor Mark Carney, in a speech after the CPI figures yesterday, failed to solidly confirm that a rate hike next month from the BOE was coming and seemed to be taking a wait and see approach.

The wage growth figures released today are not going to help his cause and it may just be the reason to leave rates on hold.

“He failed (Mr Carney) to commit to a rate hike next month only saying that a rate hike might be appropriate in the ‘coming months” said Kathleen Brooks at CityIndex.

“In fact, one could argue that Carney may have wanted to cool rate hike speculation just in case there are some weak data points between now and early November that could kill a rate hike, which may be why some long sterling traders bailed out on their positions as Carney started to speak,” she added.

Also pressuring the pound yesterday was speculation that the UK is prepared to leave the EU without no Brexit deal which some predict would be disastrous for UK business conditions and the economy overall, and the pound would see some serious losses.

"The UK government has argued at times that no deal is better than a bad deal, but we would expect no deal to be a very bad deal for GBP” predict analysts from HSBC

We would expect GBP-USD to trade around 1.10 under this ‘no-deal’ scenario, below the lows seen during the flash crash of October 2016." they added.

 

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The gold price has finally stabilized today after suffering 3 days of heavy losses and we may be in the process of a double bottom formation. It seems as if the news out of Spain that Catalonia intends to press ahead with independence has been a major contributor to this factor

As we mentioned in the previous 2 articles we don’t expect gold to break upwards in the next few trading sessions and is expected to remain range bound between the top 2 lines as it did in August.

There could be a pull back to the lower trend line which is supporting the previous 2 bottoms and may present a good entry opportunity and the predicted bullish double bottom will still be intact

 

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As we mentioned in yesterday’s technical review the pound is continuing to trade today within a narrow trading range and it will need something special to make the price break out.

There are rumors spreading that the prime minister of Spain is going to take over the government in Catalonia as early as tomorrow as the latter has refused to cancel an attempt to become independent and break off from Spain.

Its pretty amazing that just on the rumors the gold price isn’t higher as if this event happens, it will throw the Eurozone into turmoil and you can be sure investors will be looking for safe haven assets.

It might be a good time to take a long position in gold before the market closes for the weekend in readiness for this big event.

 

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The gold price is under further pressure today as investors continue to pile into the US dollar on the back of proposed tax breaks by US president Donald Trump that are beginning to take shape and the expected appointment of a hawkish Fed Chairman that advocates for higher interest rates.

The US Senate approved a new budget over the weekend that opens the door Trump’s proposed tax cuts to also pass which is seen as negative for gold as it would increase business and consumer spending while generating further interest in the Greenback.

Speculation is also rife that the US President would like to replace Fed Chairwoman Janet Yellen with Stanford University economist John Taylor who is known for his bullish stance on the US economy and will immediately push for higher interest rates.
"As the path toward tax reform in the U.S. begins to take shape and the identity of next Fed Chair becomes clearer, we are likely to see the U.S. dollar strengthen further against majors," noted analysts from MKS.
They also noted that the continuing threat from North Korea which could hit again at any time may limit golds losses as investors once again jump back in as a safehaven,
“Tensions on the Korean peninsula, however, continue to weigh upon participants' minds and as a result we are likely to see interest towards $1,250 restrict further declines." They added.

On the Charts we can now see that gold is forming a double bottom and as long as the price doesn’t fall below the first bottom ($1,267) formed in the middle of October the price should remain supported.

 

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The British pound is under pressure in today’s trading after some analysts and a Bank of England board member threw into question the expected rate hike due out in the UK next week.

Comments from BoE Deputy Governor Sir Jon Cunliffe earlier today show the divide at the moment between BOE board members on the timing of an interest rate hike and as a result the pound was sold off.

‘I am not going to try and anticipate the November meeting, but for me the economy has clearly slowed this year” Mr Cunliffe said.

“Over the forecast period of three years interest rates will need to rise. The exact timing of when that starts? well, that for me is a more open question”. He added.

Some analysts also believe that the market is jumping the gun on the question of rate rises and that the pound has risen in recent weeks on such expectations. With the UK still without a Brexit deal among other things, it’s going to be difficult to justify a rate hike next week.

“Our highest conviction macro trade in recent weeks has been short GBP as we felt that UK rate hikes were overpriced given the weak starting point for UK growth and the existential Brexit shock that continues to dominate the medium-term outlook,” says Daniel Hui, a foreign exchange strategist at JPMorgan.

 

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The Australian dollar is under further pressure today after yesterday’s spectacular plunge which seems to have put to bed any interest rate hike from the Reserve Bank of Australia in the foreseeable future.

The market had been predicting that inflation numbers would finally hit the RBA’s target rate of between 2 and 3 percent but the figures fell well short coming in at 1.8 percent.

Rodrigo Catril, FX Strategist at the National Australia Bank predicts that the chances of further losses for the Aussie dollar are significant and a move down towards US75c is not out of the question.

“The AUD is currently trading at just under the US77c mark and fair value is seen at just under 78 cents, so the pair is well inside its 2.6 cent fair value range,” noted Catril.

“Also this means that despite the recent decline, the AUD is not stretched based on fundamentals suggesting there is still downside risk for the currency.” He added.

Data out of America late yesterday also didn’t help the Australian dollar with the durable goods figure coming in at 2.2 percent against analysts’ expectations for a figure of 1 percent which all but guarantees a rate hike from the US Federal in December.

This will only close the gap on the interest rate differentials between Australia and the US and make the Australian dollar less attractive as an interest bearing investment.