Sive Morten
Special Consultant to the FPA
- Messages
- 18,727
Fundamentals
(Reuters) - Gold edged higher on Friday as the dollar retreated from this week's 14-year high and some buyers were tempted to take advantage of prices near a 10-month low after six weeks of decline.
Volumes were thin as traders prepared for a long weekend. All floor trading for precious and base metals options will be shut on Monday, Dec. 26 for the Christmas holiday. Bullion has fallen more than $200 an ounce from the peak it hit after Donald Trump's U.S. presidential election victory on Nov. 8, reaching a low last week of $1,122.35, as his win sparked a dollar rally and drove U.S. Treasury yields higher.
It is down 14 percent this quarter, paring its gain for the year to 6.7 percent. Gold posted its biggest quarterly increase in 30 years between January and March. Spot gold was up 0.32 pct at $1,132.24 per ounce by 1:50
p.m. EST (1850 GMT), but still set to finish the week lower for a sixth straight week.
The most-active U.S. gold futures for February delivery settled up $2.90, or 0.26 percent, at $1,133.60 per
ounce. "The market is trying to base right now," said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago. "Unless there are geopolitical concerns, the path of least resistance is to the downside."
The dollar eased against a basket of currencies, off highs hit after this month's Federal Reserve policy meeting. The bank surprised markets by indicating interest rates could rise more quickly than expected next year. Rising interest rates increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
"There is a risk that the prices of gold and silver might fall further in the short term as the Fed hikes rates more aggressively in response to some of Trump's more inflationary policies," Capital Economics said in a weekly note. Buying in India remained subdued this week despite a sharp fall in prices as a severe cash crunch and holidays kept purchasers away from the market, while premiums in China fell from near three-year highs touched in the prior week. Investors also showed little appetite for gold. Holdings of the world's largest gold-backed exchange-traded fund have fallen more than 12 percent since November.
Today, guys, we will take a look at AUD again, but also I thought to make a research on CAD. Actually, we was not quite wrong, when we've said that CAD could break resistance and move higher, since we thought that OPEC will not come to consensus on oil extraction freezing, but they did. But right now we see that effect of this agreement was short-term, and crude oil price stagnates slightly above 50$. CAD has shown strong rally during last 2 weeks and this means that we could return back to our initial idea. This setup could wait a bit, that's why today we will take a look at AUD, but next week we could return back to CAD discussion...
COT Report
CFTC data shows gradual closing of long positions on AUD, as net positions is dropping as well as open interest. This suggests moderately bearish sentiment on AUD. But when traders start to close longs, some day they could turn to opening of new shorts. If this will happen, it could lead to downward price acceleration.
Things that we've said about AUD last time are still valid - After election in US situation has changed significantly for AUD. Previously AUD was seemed as alternative to USD, some kind of safe haven with healthy interest rate, high credit rating currency. Right now situation has changed significantly. US economy shows strength and growing inflation, D. Trump intends to change fiscal policy and economical policy of US which significantly decreases role of high AUD rates in a light of coming Fed tightening.
Besides, Australia itself, based on last GDP report, shows signs of economy slowdown. AUD is highly correlatied with metals - as precious as basic (steel for example). Correlation stands around 70% or even greater. But prices right now are going down due USD strength. In medium term perspective this could lead to further AUD deppreciation. And we see some technical issues that also support this view.
Technicals
Monthly
Situation on monthly chart of AUD has changed slightly, especially after US elections. Our previous analysis was based on two major factors. Technical one has suggested upside bounce due reaching of strong, major 5/8 monthly Fib level and appearing there DRPO "Buy" pattern. While fundametal factor was a healthy interest rates in Australia and so-so Fed policy on rate hiking, especially when they have said on just 2 rate changing instead of 4.
As elections have happened, now more agressive Fed policy is expected, especially in 2018, more protectionism, more stimulus from Trump to domestic economy. This combination will become a headwind to AUD appreciation, especially on a background of some issues that we've specified in last research. As a result we see CFTC data that indicates more closing of long positions, we see changing rethoric from RBA that brings more dovish hints. And we see reflection of these events in current technical picture of AUD.
On monthly chart, as AUD has reached YPP early, in the beginning of the year - for the whole year it was not able to break it up. So 50% FIb resistance level has not been completed. Besides, right now AUD drops below YPP. This, in turn, could lead AUD lower to YPS1 level (although there is not much time till the end of the year). Something of the same kind we saw on EUR, but there drop out from YPP has happened earlier than here. Although very soon we will get new yearly pivots, but they will be almost the same as now, because AUD spend whole year in tight range.
So this action could take a shape of double bottom (conservative scenario) or, even butterfly "buy" that has 2 extensions - 0.65 and 0.61 levels. Both stand around previous lows of 2008.
Still you could argue that recent action doesn't break yet chances on upside butterfly as well and AUD still could reach YPR1, at least until lows around 0.7150 holds. This is true, formally. But We see price action on weekly chart that mostly unspecific for bullish market. It leads us to conclusion that further drop has more chances than reversal up...
Weekly
What particular we do not like in recent action?
Take a look at weekly picture. Here we have clear reverse H&S pattern, and initially this was a pearl in our analysis that provided confidence in possible upside reversal, so everything was as it should to be. AUD was going to become a safe haven and replace US for investors in coming uncertainy of US elections, Middle East war, Separatistic sentiment in EU etc. But situation has changed as well as price behavior.
Take a look what AUD shows right around neck line. It has reached it, then has turned to long-term consolidation but was not able to break it up. In fact AUD was not able to pass through nearest 3/8 FIb resistance level and dropped. This is not the way how upside reversals and breakouts happen usually, right?
Now AUD stands below MPP, trend has turned bearish here. So, on weekly chart, major level is 0.7150 lows, bottom of right shoulder. As we've said above - it is important, since it keeps valid (at least theoretically) chances on appearing upside butterfly. But not only due this reason. This level is important also, because this is a key to massive drop. If AUD fails around right shoulder - it will drop below head's bottom and this will open road to previous lows around 0.68. Last week AUD has made another step in this direction and now it stands in fact, right at 0.7150...
Daily
Daily chart brings most important information for us. Here two major things that we sould pay attention to. First of all is "B" lows. This is the point, where even theoretical chances on upside rebound will be vanished as soon as market will pass through it. But what chances that this will happen?
To answer on this question we need to take a look at second subject. This is large AB=CD pattern (green). Take a look that market already has reached 0.618 target and shown minor upside retracement as respect of it. Right now AUD shows downward continuation and price already has dropped below 0.618 target. Last week it has moved even lower. It means that currently market stands in extension stage and should continue action to next 1.0 target at 0.71 area.
0.71 AB=CD target stands below "B" lows and this fact significantly reduces chances on lows' survival. They are mostly doomed.
Also you can see lack of Fib levels here. The only real support will stand around 0.7210 area - major 5/8 level and MPS1. But it already has been tested once and now price already stands below it.
Also we have minor AB=CD pattern here (red). But it has target very close to the large one, and probably both will be hit at the same time, especially if stops below "B" point will be triggered.
Last week we've watched for DRPO "Buy" on intraday chart, but market had no sufficient power to form it. Even more - CFTC shows long position covering but not short. So, AUD is so weak that was not able to show even minor bounce on intraday charts before Xmas holidays.
As we haven't got DRPO on 4 hour chart and price has dropped lower last week - now we could look for DRPO "Buy" on daily chart. But probably it has chances to appear only as major targets around 0.7050-0.71 will be hit.
Also pay attention that DRPO here is just co-pattern, not major context. It is mostly short-term pause in major downside tendency. It is tactical and we should treat is correspondingly.
4-hour
Besides of DRPO failure, here we have another bearish signs. First is butterfly collapse. Market has passed through all extesions. Thus, butterfly has failed. Usually if butterfly fails, it fails miserably, which means that market drops further.
Last week, price also has dropped below WPS1 that is also bearish sign and suggests existence of bear trend. As price stands not too far from major daily destination - 100 pips maximum, and it is not oversold and has not strong support below, we probably could get only minor retracement on Monday. Most probable action is to 0.72-0.7215 area - to test WPP, MPS1 and one of the Fib levels. After that, following to logic of technical picture, downward action should continue:
Conclusion:
Due changing geopolitical situation and force balance in US economy, AUD could meet strong headwind in medium-term perspective. This could press on AUD and lead it to previous lows around 0.68 area or even lower if monthly butterfly will be formed.
In shorter-term perspective we see bearish signs on AUD and expect that it will continue move down. Nearest target stands at 0.7050-0.71 area.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
(Reuters) - Gold edged higher on Friday as the dollar retreated from this week's 14-year high and some buyers were tempted to take advantage of prices near a 10-month low after six weeks of decline.
Volumes were thin as traders prepared for a long weekend. All floor trading for precious and base metals options will be shut on Monday, Dec. 26 for the Christmas holiday. Bullion has fallen more than $200 an ounce from the peak it hit after Donald Trump's U.S. presidential election victory on Nov. 8, reaching a low last week of $1,122.35, as his win sparked a dollar rally and drove U.S. Treasury yields higher.
It is down 14 percent this quarter, paring its gain for the year to 6.7 percent. Gold posted its biggest quarterly increase in 30 years between January and March. Spot gold was up 0.32 pct at $1,132.24 per ounce by 1:50
p.m. EST (1850 GMT), but still set to finish the week lower for a sixth straight week.
The most-active U.S. gold futures for February delivery settled up $2.90, or 0.26 percent, at $1,133.60 per
ounce. "The market is trying to base right now," said Eli Tesfaye, senior market strategist for brokerage RJO Futures in Chicago. "Unless there are geopolitical concerns, the path of least resistance is to the downside."
The dollar eased against a basket of currencies, off highs hit after this month's Federal Reserve policy meeting. The bank surprised markets by indicating interest rates could rise more quickly than expected next year. Rising interest rates increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
"There is a risk that the prices of gold and silver might fall further in the short term as the Fed hikes rates more aggressively in response to some of Trump's more inflationary policies," Capital Economics said in a weekly note. Buying in India remained subdued this week despite a sharp fall in prices as a severe cash crunch and holidays kept purchasers away from the market, while premiums in China fell from near three-year highs touched in the prior week. Investors also showed little appetite for gold. Holdings of the world's largest gold-backed exchange-traded fund have fallen more than 12 percent since November.
Today, guys, we will take a look at AUD again, but also I thought to make a research on CAD. Actually, we was not quite wrong, when we've said that CAD could break resistance and move higher, since we thought that OPEC will not come to consensus on oil extraction freezing, but they did. But right now we see that effect of this agreement was short-term, and crude oil price stagnates slightly above 50$. CAD has shown strong rally during last 2 weeks and this means that we could return back to our initial idea. This setup could wait a bit, that's why today we will take a look at AUD, but next week we could return back to CAD discussion...
COT Report
CFTC data shows gradual closing of long positions on AUD, as net positions is dropping as well as open interest. This suggests moderately bearish sentiment on AUD. But when traders start to close longs, some day they could turn to opening of new shorts. If this will happen, it could lead to downward price acceleration.
Things that we've said about AUD last time are still valid - After election in US situation has changed significantly for AUD. Previously AUD was seemed as alternative to USD, some kind of safe haven with healthy interest rate, high credit rating currency. Right now situation has changed significantly. US economy shows strength and growing inflation, D. Trump intends to change fiscal policy and economical policy of US which significantly decreases role of high AUD rates in a light of coming Fed tightening.
Besides, Australia itself, based on last GDP report, shows signs of economy slowdown. AUD is highly correlatied with metals - as precious as basic (steel for example). Correlation stands around 70% or even greater. But prices right now are going down due USD strength. In medium term perspective this could lead to further AUD deppreciation. And we see some technical issues that also support this view.
Technicals
Monthly
Situation on monthly chart of AUD has changed slightly, especially after US elections. Our previous analysis was based on two major factors. Technical one has suggested upside bounce due reaching of strong, major 5/8 monthly Fib level and appearing there DRPO "Buy" pattern. While fundametal factor was a healthy interest rates in Australia and so-so Fed policy on rate hiking, especially when they have said on just 2 rate changing instead of 4.
As elections have happened, now more agressive Fed policy is expected, especially in 2018, more protectionism, more stimulus from Trump to domestic economy. This combination will become a headwind to AUD appreciation, especially on a background of some issues that we've specified in last research. As a result we see CFTC data that indicates more closing of long positions, we see changing rethoric from RBA that brings more dovish hints. And we see reflection of these events in current technical picture of AUD.
On monthly chart, as AUD has reached YPP early, in the beginning of the year - for the whole year it was not able to break it up. So 50% FIb resistance level has not been completed. Besides, right now AUD drops below YPP. This, in turn, could lead AUD lower to YPS1 level (although there is not much time till the end of the year). Something of the same kind we saw on EUR, but there drop out from YPP has happened earlier than here. Although very soon we will get new yearly pivots, but they will be almost the same as now, because AUD spend whole year in tight range.
So this action could take a shape of double bottom (conservative scenario) or, even butterfly "buy" that has 2 extensions - 0.65 and 0.61 levels. Both stand around previous lows of 2008.
Still you could argue that recent action doesn't break yet chances on upside butterfly as well and AUD still could reach YPR1, at least until lows around 0.7150 holds. This is true, formally. But We see price action on weekly chart that mostly unspecific for bullish market. It leads us to conclusion that further drop has more chances than reversal up...
Weekly
What particular we do not like in recent action?
Take a look at weekly picture. Here we have clear reverse H&S pattern, and initially this was a pearl in our analysis that provided confidence in possible upside reversal, so everything was as it should to be. AUD was going to become a safe haven and replace US for investors in coming uncertainy of US elections, Middle East war, Separatistic sentiment in EU etc. But situation has changed as well as price behavior.
Take a look what AUD shows right around neck line. It has reached it, then has turned to long-term consolidation but was not able to break it up. In fact AUD was not able to pass through nearest 3/8 FIb resistance level and dropped. This is not the way how upside reversals and breakouts happen usually, right?
Now AUD stands below MPP, trend has turned bearish here. So, on weekly chart, major level is 0.7150 lows, bottom of right shoulder. As we've said above - it is important, since it keeps valid (at least theoretically) chances on appearing upside butterfly. But not only due this reason. This level is important also, because this is a key to massive drop. If AUD fails around right shoulder - it will drop below head's bottom and this will open road to previous lows around 0.68. Last week AUD has made another step in this direction and now it stands in fact, right at 0.7150...
Daily
Daily chart brings most important information for us. Here two major things that we sould pay attention to. First of all is "B" lows. This is the point, where even theoretical chances on upside rebound will be vanished as soon as market will pass through it. But what chances that this will happen?
To answer on this question we need to take a look at second subject. This is large AB=CD pattern (green). Take a look that market already has reached 0.618 target and shown minor upside retracement as respect of it. Right now AUD shows downward continuation and price already has dropped below 0.618 target. Last week it has moved even lower. It means that currently market stands in extension stage and should continue action to next 1.0 target at 0.71 area.
0.71 AB=CD target stands below "B" lows and this fact significantly reduces chances on lows' survival. They are mostly doomed.
Also you can see lack of Fib levels here. The only real support will stand around 0.7210 area - major 5/8 level and MPS1. But it already has been tested once and now price already stands below it.
Also we have minor AB=CD pattern here (red). But it has target very close to the large one, and probably both will be hit at the same time, especially if stops below "B" point will be triggered.
Last week we've watched for DRPO "Buy" on intraday chart, but market had no sufficient power to form it. Even more - CFTC shows long position covering but not short. So, AUD is so weak that was not able to show even minor bounce on intraday charts before Xmas holidays.
As we haven't got DRPO on 4 hour chart and price has dropped lower last week - now we could look for DRPO "Buy" on daily chart. But probably it has chances to appear only as major targets around 0.7050-0.71 will be hit.
Also pay attention that DRPO here is just co-pattern, not major context. It is mostly short-term pause in major downside tendency. It is tactical and we should treat is correspondingly.
4-hour
Besides of DRPO failure, here we have another bearish signs. First is butterfly collapse. Market has passed through all extesions. Thus, butterfly has failed. Usually if butterfly fails, it fails miserably, which means that market drops further.
Last week, price also has dropped below WPS1 that is also bearish sign and suggests existence of bear trend. As price stands not too far from major daily destination - 100 pips maximum, and it is not oversold and has not strong support below, we probably could get only minor retracement on Monday. Most probable action is to 0.72-0.7215 area - to test WPP, MPS1 and one of the Fib levels. After that, following to logic of technical picture, downward action should continue:
Conclusion:
Due changing geopolitical situation and force balance in US economy, AUD could meet strong headwind in medium-term perspective. This could press on AUD and lead it to previous lows around 0.68 area or even lower if monthly butterfly will be formed.
In shorter-term perspective we see bearish signs on AUD and expect that it will continue move down. Nearest target stands at 0.7050-0.71 area.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.