Sive Morten
Special Consultant to the FPA
- Messages
- 18,630
Fundamentals
Fundamental part of this week the mirror of the previous one. Everything twists around coronavirus epidemic and the intensity of its spreading across the Globe. Rumors that it slows a bit depresses gold, while rumors on acceleration supports gold. That's all. It is boring a bit, but this is the reality that we have right now. As a result sentiment on the market changes very fast and it makes difficult to trade it on daily chart and lower.
Two weeks ago we couldn't get to see gold starting upward action, while this week rally was so strong that no even minor retracement has been formed. The most active rally stage has started on Tuesday -
spurred by demand for safe-havens after iPhone maker Apple Inc’s revenue warning underscored the financial fallout of the coronavirus epidemic in China.
“Asian-Pacific markets have opened broadly lower. Investors right now are very concerned about the economic impact of the coronavirus, also on business sentiment and consumer demand,” CMC Markets analyst Margaret Yang Yan said.
Apple has cut revenue forecast for the March quarter on the disruption in China due to the virus and weaker demand from the Chinese market, leading to a risk-off sentiment in the market, she said. Apple is one of the largest Western firms to be hurt by the epidemic.
It said manufacturing facilities in China that produce iPhone and other electronics have begun to reopen, but they are ramping up more slowly than expected. That pushed U.S. stocks futures as well as Asian shares lower.
The death toll from the virus in mainland China rose by 98, even as its spread slowed with the number of new cases falling below 2,000 as of Monday. However, global experts warned it was too early to say the outbreak is being contained. Meanwhile, China continued its effort to ease the drag to the businesses, with its central bank cutting the interest rate on its medium-term lending on Monday.
On the technical front, “gold sits only 10 dollars or so away from major resistance in the $1,595/1,600 an ounce region. A daily close above this area would be a strong technical signal that further gains lie ahead,” Jeffrey Halley, senior market analyst at OANDA, said in a note.
“Dollar and gold are negatively correlated, but at this moment even though dollar is moving higher, gold is moving higher and that means the demand for safety is outweighing the currency impact on gold,” CMC’s Yan said.
Gold jumped more than 1.5% on Friday to its highest level in seven years as investors rushed to the metal’s safety due to concerns over global economic fallout from the fast-spreading coronavirus.
“Markets are once again anxious because the coronavirus outbreak is possibly spreading outside China. There is huge amount of safe-haven demand as economic slowdown in China, Japan and Germany is expected to persist in the first half of the year,” said Edward Moya, a senior market analyst at broker OANDA. “Expectations are pretty high that central banks will deliver stimulus across the board. That will continue to prop up gold prices.”
South Korea reported 52 new cases, taking the national total to 156, while Japan reported the first fatalities from a cruise ship which accounted for the biggest cluster of infections outside China. China also reported an uptick in new cases. The increase in the number of newly infected weighed on stocks in the United States and across the world.
U.S. business activity in both the manufacturing and services sectors stalled in February as companies have grown increasingly concerned about the outbreak, a survey of purchasing managers showed on Friday. Poor economic data from the United States tends to drive expectations for an interest rate cut by the Federal Reserve. Lower interest rates decrease the opportunity cost of non-yielding bullion.
That's being said - JPY has been excluded temporary from the list of "safe haven" assets due rising virus cases and now investors worry that Japan could become second largest country harmed by virus epidemic. On assets re-distribution out from JPY - USD and Gold have got additional support simultaneously.
It is needless to say that overall speculation position hits all time high again by recent CFTC data:
Source: cftc.gov
Charting by Investing.com
That's being said, currently we have unique, outstanding situation. Last year when we talked on coming long-term upside trend and point on 1650 target we just can't get know that it will be virus, but have tried to find common economical reasons and factors. But reality appears to be cruel. Under impact of strong external factor - economical, technical factors stop to work properly and market ignores them within some time. In this time any investor meets dilemma and has to make a decision - either to follow the mass tendency or strictly hold to valuation of the market, which is overbought right now. In first approach you just flow down the river, while second one doesn't let you to buy when it contradicts to valuation.
Now we're coming to major monthly resistance area, high saturation of long positions and overbought condition. In normal situation gold should react on it by some moderate pullback, but whether this will happen this time - we will see.
Technical
Monthly
So, all eyes on monthly chart right now. Here is the major event coming - reaching of major XOP target. Despite that it was the tough task to come a board of the rally in practice, theoretical part of our trading plan is completed accurately. Market is not at overbought here and gold easily should pass the rest 5$ to hit XOP.
Additionally we could make few comments. First is, gold has passed through YPR1. Not too far, but it stands above it. This moment suggests existence of new bull trend, not just a retracement of previous downside action.
Second... to be honest I do not know what reaction will be. Yes, this is major XOP, but on a way to it market has broken through major 5/8 Fib level and shown puny reaction on 1.618 butterfly extension target when previous 1573 top has been formed. It was stronger level, but no significant reaction has followed. XOP doesn't accompanied by any Fib level, it is lonely target. Let's see whether it will be strong enough to trigger solid pullback.
Weekly
On weekly chart market stands near overbought area, but it doesn't prevent reaching of major XOP as gold feels free to spike the OB levels rather often. Technically we see the signs that market is preparing to show some respect to major destination point. Take a look at MACD - although we do not have bearish line cross yet, but it seems that chances to get divergence here are rather high.
Currently we should keep an eye on some reversal pattern that has to be formed if downside monthly pullback starts.
Our doji range target shows that gold might hit 1690 level, but targets of this kind are not as accurate as extensions. Besides, XOP is more the range rather precise level, some fluctuations around it are possible.
Daily
Gold is strongly overbought at daily chart. Also we have bearish reversal pattern in progress - this is our butterfly "Sell". It tells that reversal should start around 1658-1660 area. Additionally we will get combination of daily overbought and monthly XOP, which is also DiNapoli directional pattern.
Second pattern that we could discuss here, but it is a bit risky... Take a look, recent swing up is suitable for B&B "Buy" trade. First 3/8 support stands around former top. It would be better if market shows retracement first and upside continuation to 1658 target second. Conversely, drop from major target could be too strong that destroys B&B. Anyway, I give you the hint and you decide
By the way, Roger also posts the signal on major XOP trade
Intraday
On intraday charts we have nothing interesting - all target have been exceeded. Here we point just few Fib levels that might be useful in a process of retracement. Pay attention to Fib levels based on gap, that still stands unfilled. It creates Confluence area as with major 1610 daily level as with 1615 one. In general we see the cluster of Fib levels around 1610 area - this is additional plus for potential B&B "Buy" trade.
It seems that here we could get the chain of small B&B's, because we have few thrusts of different size and even final swing here, on 4H chart is suitable for separate B&B small trade. The B&B's "Collection" is not our primary object, of course, as we mostly would like to Sell. But maybe this information will be useful for you.
Conclusion:
Market comes to most thrilling moment - major monthly XOP target. This target is accompanied by other indicators that supports idea of moderate pullback. Daily chart is preparing reversal pattern already, which is butterfly "Sell". Still overall situation is not very simple, as gold has ignored previously stronger resistance and now it is a question whether just XOP could hold upside action. We're dealing with uncommon situation as market is driven by external factor - coronavirus epidemic, and this breaks common way of market behavior, makes it irrational.
Fundamental part of this week the mirror of the previous one. Everything twists around coronavirus epidemic and the intensity of its spreading across the Globe. Rumors that it slows a bit depresses gold, while rumors on acceleration supports gold. That's all. It is boring a bit, but this is the reality that we have right now. As a result sentiment on the market changes very fast and it makes difficult to trade it on daily chart and lower.
Two weeks ago we couldn't get to see gold starting upward action, while this week rally was so strong that no even minor retracement has been formed. The most active rally stage has started on Tuesday -
spurred by demand for safe-havens after iPhone maker Apple Inc’s revenue warning underscored the financial fallout of the coronavirus epidemic in China.
“Asian-Pacific markets have opened broadly lower. Investors right now are very concerned about the economic impact of the coronavirus, also on business sentiment and consumer demand,” CMC Markets analyst Margaret Yang Yan said.
Apple has cut revenue forecast for the March quarter on the disruption in China due to the virus and weaker demand from the Chinese market, leading to a risk-off sentiment in the market, she said. Apple is one of the largest Western firms to be hurt by the epidemic.
It said manufacturing facilities in China that produce iPhone and other electronics have begun to reopen, but they are ramping up more slowly than expected. That pushed U.S. stocks futures as well as Asian shares lower.
The death toll from the virus in mainland China rose by 98, even as its spread slowed with the number of new cases falling below 2,000 as of Monday. However, global experts warned it was too early to say the outbreak is being contained. Meanwhile, China continued its effort to ease the drag to the businesses, with its central bank cutting the interest rate on its medium-term lending on Monday.
On the technical front, “gold sits only 10 dollars or so away from major resistance in the $1,595/1,600 an ounce region. A daily close above this area would be a strong technical signal that further gains lie ahead,” Jeffrey Halley, senior market analyst at OANDA, said in a note.
“Dollar and gold are negatively correlated, but at this moment even though dollar is moving higher, gold is moving higher and that means the demand for safety is outweighing the currency impact on gold,” CMC’s Yan said.
Gold jumped more than 1.5% on Friday to its highest level in seven years as investors rushed to the metal’s safety due to concerns over global economic fallout from the fast-spreading coronavirus.
“Markets are once again anxious because the coronavirus outbreak is possibly spreading outside China. There is huge amount of safe-haven demand as economic slowdown in China, Japan and Germany is expected to persist in the first half of the year,” said Edward Moya, a senior market analyst at broker OANDA. “Expectations are pretty high that central banks will deliver stimulus across the board. That will continue to prop up gold prices.”
South Korea reported 52 new cases, taking the national total to 156, while Japan reported the first fatalities from a cruise ship which accounted for the biggest cluster of infections outside China. China also reported an uptick in new cases. The increase in the number of newly infected weighed on stocks in the United States and across the world.
U.S. business activity in both the manufacturing and services sectors stalled in February as companies have grown increasingly concerned about the outbreak, a survey of purchasing managers showed on Friday. Poor economic data from the United States tends to drive expectations for an interest rate cut by the Federal Reserve. Lower interest rates decrease the opportunity cost of non-yielding bullion.
That's being said - JPY has been excluded temporary from the list of "safe haven" assets due rising virus cases and now investors worry that Japan could become second largest country harmed by virus epidemic. On assets re-distribution out from JPY - USD and Gold have got additional support simultaneously.
It is needless to say that overall speculation position hits all time high again by recent CFTC data:
Source: cftc.gov
Charting by Investing.com
That's being said, currently we have unique, outstanding situation. Last year when we talked on coming long-term upside trend and point on 1650 target we just can't get know that it will be virus, but have tried to find common economical reasons and factors. But reality appears to be cruel. Under impact of strong external factor - economical, technical factors stop to work properly and market ignores them within some time. In this time any investor meets dilemma and has to make a decision - either to follow the mass tendency or strictly hold to valuation of the market, which is overbought right now. In first approach you just flow down the river, while second one doesn't let you to buy when it contradicts to valuation.
Now we're coming to major monthly resistance area, high saturation of long positions and overbought condition. In normal situation gold should react on it by some moderate pullback, but whether this will happen this time - we will see.
Technical
Monthly
So, all eyes on monthly chart right now. Here is the major event coming - reaching of major XOP target. Despite that it was the tough task to come a board of the rally in practice, theoretical part of our trading plan is completed accurately. Market is not at overbought here and gold easily should pass the rest 5$ to hit XOP.
Additionally we could make few comments. First is, gold has passed through YPR1. Not too far, but it stands above it. This moment suggests existence of new bull trend, not just a retracement of previous downside action.
Second... to be honest I do not know what reaction will be. Yes, this is major XOP, but on a way to it market has broken through major 5/8 Fib level and shown puny reaction on 1.618 butterfly extension target when previous 1573 top has been formed. It was stronger level, but no significant reaction has followed. XOP doesn't accompanied by any Fib level, it is lonely target. Let's see whether it will be strong enough to trigger solid pullback.
Weekly
On weekly chart market stands near overbought area, but it doesn't prevent reaching of major XOP as gold feels free to spike the OB levels rather often. Technically we see the signs that market is preparing to show some respect to major destination point. Take a look at MACD - although we do not have bearish line cross yet, but it seems that chances to get divergence here are rather high.
Currently we should keep an eye on some reversal pattern that has to be formed if downside monthly pullback starts.
Our doji range target shows that gold might hit 1690 level, but targets of this kind are not as accurate as extensions. Besides, XOP is more the range rather precise level, some fluctuations around it are possible.
Daily
Gold is strongly overbought at daily chart. Also we have bearish reversal pattern in progress - this is our butterfly "Sell". It tells that reversal should start around 1658-1660 area. Additionally we will get combination of daily overbought and monthly XOP, which is also DiNapoli directional pattern.
Second pattern that we could discuss here, but it is a bit risky... Take a look, recent swing up is suitable for B&B "Buy" trade. First 3/8 support stands around former top. It would be better if market shows retracement first and upside continuation to 1658 target second. Conversely, drop from major target could be too strong that destroys B&B. Anyway, I give you the hint and you decide
By the way, Roger also posts the signal on major XOP trade
Intraday
On intraday charts we have nothing interesting - all target have been exceeded. Here we point just few Fib levels that might be useful in a process of retracement. Pay attention to Fib levels based on gap, that still stands unfilled. It creates Confluence area as with major 1610 daily level as with 1615 one. In general we see the cluster of Fib levels around 1610 area - this is additional plus for potential B&B "Buy" trade.
It seems that here we could get the chain of small B&B's, because we have few thrusts of different size and even final swing here, on 4H chart is suitable for separate B&B small trade. The B&B's "Collection" is not our primary object, of course, as we mostly would like to Sell. But maybe this information will be useful for you.
Conclusion:
Market comes to most thrilling moment - major monthly XOP target. This target is accompanied by other indicators that supports idea of moderate pullback. Daily chart is preparing reversal pattern already, which is butterfly "Sell". Still overall situation is not very simple, as gold has ignored previously stronger resistance and now it is a question whether just XOP could hold upside action. We're dealing with uncommon situation as market is driven by external factor - coronavirus epidemic, and this breaks common way of market behavior, makes it irrational.
