Gold GOLD PRO WEEKLY, October 21 - 25, 2019

Sive Morten

Special Consultant to the FPA
Messages
12,648
Fundamentals

This week gold was a bit in shadow of FX market, as major driving factors make direct impact on EUR and GBP and they are in focus right now. Brexit turmoil relates to gold market as well, but at less degree than, say, GBP. Mostly Gold could get an advantage as soon as first results of Brexit will hurt as EU as UK economy.

Still, today we can't avoid this topic as well, because UK voting has taken place and we have first results. Another factor that impacts on Gold is US/China tariffs, but this is becoming byword as nobody sees the end and it is rolling and rolling. The side effect of this - weaker impact on the market and soon this factor could make no impact on price at all.

As Reuters reports - Gold steadied on Friday (and through the week in general), helped by a weaker dollar, with the possibility of a no-deal Brexit, uncertainties over U.S-China trade and fears of a global slowdown keeping bullion on track for a small weekly gain.

“The dollar is a bit soft so (that) could help a little, but overall gold is meandering in no-man’s land. Perhaps we’ve found a restive equilibrium until we get a fresh macro driver,” said Tai Wong, head of base and precious metals derivatives trading at BMO.

“The $1,380-$1,400 range ought to be a solid bottom for gold and $1,480-$1,520 seems really to be the equilibrium.”


Britain and the European Union sealed a new Brexit deal on Thursday, but whether that deal will be approved by the British parliament on Saturday was keeping markets on edge.

“Brexit is a coin flip at this point of time going into the weekend, we’re still waiting on the trade situation to see if they’re going to ink an actual partial deal,” said David Meger, director of metals trading at High Ridge Futures.

“The focal point today will be the Fed speak. We’re hoping to get any type of clue if there are any changes in the rate cut mentality at the end of this month. In recent days there have been discussions about a potential pause.”


The U.S. Federal Reserve is watching for signs that a global trade slowdown is having an impact in the United States beyond manufacturing and investment, but is not yet heading into a “full-fledged rate cutting cycle,” Dallas Federal Reserve President Robert Kaplan said.

In general, expectations on more dovish Fed policy have increased this week, as U.S. retail sales fell for the first time in seven months in September, suggesting that manufacturing-led weakness could be spreading to the broader economy, keeping the door open for the Federal Reserve to cut interest rates again later this month.

Currently, 25 points cut is decided issue, but in perspective till April 2020 - another rate cut stands on the table as it is shown in Fed Watch Tool:
upload_2019-10-20_14-59-26.png

Source: cmegroup.com

Drop in Retail Sales is important as it takes 70% GDP numbers. Retail Sales releases monthly and widely used for regression models to predict GDP data. Thus, when we see weak Retail Sales - we know that investors take position for weaker GDP that is yet to release.

In another sign the trade dispute is dragging on economic growth, data from China showed its third-quarter economic growth slowed to its weakest pace in almost three decades.

CFTC data shows that Gold positions are off-loaded a bit, as short-term speculators have fixed profit and stand out of the market by far. This lets gold to step out from strong saturation area and open space for new longs and upside continuation. Overall drop in positions is not critical as it stands strongly bullish and decreasing from top to 250K level was not in a collapse way, it was mostly gradual. It means that long-term traders still keep gold in their pockets.
upload_2019-10-20_15-7-6.png


SPDR fund numbers mostly stand in a row with CFTC - its holdings fell 0.16% to 918.19 tonnes on Wednesday from 919.66 tonnes on Tuesday, but still stand rather high and no massive sell-off has happened.

Finally, we've got news from UK. Reuters reports that Prime Minister Boris Johnson sent an unsigned letter to the European Union requesting a delay to Britain’s exit from the bloc but added another note in which he explained that he did not want a “deeply corrosive” Brexit extension.

He was compelled, by a law passed last month by opponents, to send a letter to the bloc asking to push back the deadline to Jan. 31 after lawmakers thwarted his attempt to pass his EU divorce deal on Saturday.

In an extraordinary step that indicates the extent of the Brexit fever gripping the United Kingdom, Johnson sent a total of three letters to Donald Tusk, the president of the European Council.

First, a brief cover note from Britain’s EU envoy explaining that the government was simply complying with that law; second, an unsigned photocopy of the text that the law, known as the Benn Act, forced him to write; and a third letter in which Johnson said that he did not want an extension.

“I have made clear since becoming Prime Minister and made clear to parliament again today, my view, and the Government’s position, that a further extension would damage the interests of the UK and our EU partners, and the relationship between us,” Johnson said in the third letter which was signed “Boris Johnson”.

Johnson, for whom delivering Brexit is key to his plan to hold an early election, said he was confident that the process of getting the Brexit legislation through Britain’s parliament would be completed before Oct. 31, according to the letter.

Tusk said he had received the request from Johnson.

“I will now start consulting EU leaders on how to react,” he said on Twitter.

French President Emmanuel Macron told Johnson that Paris needed swift clarification on the situation after Saturday’s vote, an official at the French presidency told Reuters.

“He signalled a delay would be in no one’s interest,” the official said.

However, it was unlikely that the EU’s 27 members states would refuse Britain’s delay request.

Johnson had hoped that Saturday would see recalcitrant lawmakers finally back the divorce deal he agreed with EU leaders this week and end three years of political deadlock since the 2016 referendum vote to leave the bloc.

Instead, lawmakers voted 322 to 306 in favour of an amendment that turned Johnson’s planned finale on its head by obliging him to ask the EU for a delay, and increasing the opportunity for opponents to frustrate Brexit.

Opposition politicians accused him of believing he was above the law.

“Johnson is a Prime Minister who is now treating Parliament and the Courts with contempt,” John McDonnell, the opposition Labour Party’s finance spokesman said.

“His juvenile refusal to even sign the letter confirms what we always suspected that Johnson with his arrogant sense of entitlement considers he is above the law and above accountability.”

Scotland’s highest court is due to consider on Monday a legal challenge that had sought to force Johnson to comply with the Benn Act. The court said earlier this month that government lawyers had given formal legal statements that he would abide by the Benn Act and it would be a serious matter if he did not.

“Boris Johnson promised #Scottish court he would comply with #BennAct & not seek to frustrate it. Looks like he’s breaking both promises,” Joanna Cherry, a Scottish National Party lawmaker involved in the case said on Twitter.

So, as a bottom line - fundamental background mostly corresponds to the chart picture that we see on gold. Brexit postponing, weaker US data, coming rate cut and new comments from the Fed, which are widely expected to be more dovish, China slowdown - all these factors support gold. Technically, as we said previously gold keeps moderately bullish sentiment which is reflected in charts as well.

Technical
Monthly

This week stands in the same trading range as previous one, thus, on monthly chart we do not have a lot of changes. Gold stands in reaction to strong resistance area and October is inside month by far. The resistance here is strong and valuable and it deserves meaningful retracement. But currently it is too few signs of real retracement. September drop was too small and mostly reminds consolidation around the level rather than retracement, and October performance just confirms this.

Price doesn't go down and stands near the target. Major Fib level has not been reached as well. This is not the way how usually bearish reaction develops.

We keep this area - 1530-1585 as tactical ceil by far, but, as we have additional driving factors, we should pay attention to daily and intraday performance, just to not miss the signs of upside continuation.

In general, combination of butterfly target, major 5/8 Fib resistance and monthly overbought is rather strong barrier. Something really outstanding has to happen to force gold break it without respect. At the same time, the way how this respect will start is still unclear. Gold has a lot of freedom in this subject as it could flirt with resistance some time before major reaction will start.
gold_m_21_10_19.png


Weekly

Last week have become an inside one, showing very small trading range. At the same time the weekly chart is the one that explains why we think that gold is bullish still. As we know any real retracement should be strong, because drop always faster than rally due emotions. Fear is stronger than greed. But gold doesn't show any fear. Pullback is slow and small as price has not reached even near standing Fib support. XOP is still untouched. So, our suggestion - gold is forming consolidation before final upside leg.

As we said earlier, we need price close above 3x3 DMA, preferably forming a new top of DRPO pattern.

That' being said, despite that smell of the retracement in the air - gold stands stubbornly too tight to the top - last week was inside one, which means that major downside action is somewhere in the future and we can't ignore possible return back to the tops.
gold_w_21_10_19.png


Daily

Daily time frame obliges us to operate with extended patterns, such as our falling wedge as price forms no other ones around. To be honest, this kind of wedge/flag consolidation mostly relates to weekly chart as it looks a bit large for daily one and here it is more the channel rather than flag.

Despite that we have grabber and reversal sessions last week - they have no impact on price action and the only valuable event that could become the key to the riddle is recent lows. Gold has not dropped to the lower border of the channel (at least now), as it should but holds in the middle of the range. By classical analysis early reversal could become a sign of coming breakout. As we have friendly fundamental background - maybe gold finally will be out of consolidation on coming week.

At least, currently we definitely do not have any bearish context. But the question where and how to go long on gold - still stands open. In force-major cases, when it is nothing to hook for - no clear patterns, levels or something, it is possible to take small position inside big bullish pattern and place far stop, below 1450, or think about using of Stop "Buy" order, in case of flag breakout on weekly chart. This is not common practice, but in current circumstance we do not have any other choice, except maybe just standing out of the market.

gold_d_21_10_19.png


Intraday

Here on intraday charts, gold also doesn't look hopeless. It has "222" Buy pattern, stands around major 5/8 Fib support and even forming triangle with bullish grabber inside. All these stuff tells that rebound is still possible and coming week is suitable enough for this. At least, upside breakout and action above 1500 could put the foundation of daily channel breakout. In recent 2-3 weeks price action mostly was standing indecision.
gold_4h_21_10_19.png


Conclusion

Technically gold is not bearish and keeps bullish signs, especially on weekly chart. As we have friendly fundamental background on coming week - let's see, whether it will strong enough to push gold from dead point.
 

Sive Morten

Special Consultant to the FPA
Messages
12,648
Greetings everybody,

It is difficult to comment just one Monday candle, as price action becomes more and more narrow, but this candle has become another bearish grabber. As market stands in retracement choppy environment, grabbers work worse and not every time. Actually we see it on previous examples.

Most important thing right now is direction. It probably will be set as soon as gold will break out from pennant first, and downside channel second. Although longer-term picture still looks bullish but gold still can't get started any action. It means just one thing - we have to sit on the hands and wait clear signals.
gold_d_22_10_19.png


Definitely we do not have any reasons to sell on daily chart by far, but, despite potentially bullish combination on weekly - no thrilling reasons to buy as well.

Besides, Gold now stands in tight relation to EUR due weekly Gold/EUR DRPO "Sell" pattern, which has been confirmed but still has a lot of room to go. It means that if EUR will rise - gold should rise weaker, if EUR will start to fall - gold should fall faster... Opposite action is less probable as they both relate to USD.

Unfortunately we have nothing yet to please you, but as we're coming closer to Fed meeting by the end of the month, gold should get out from sleeping.
 

Sive Morten

Special Consultant to the FPA
Messages
12,648
Guys, as gold still stands inside the triangle, today we shift to GBP.

In general, on GBP price behavior is similar to EUR. Both currencies stand around major K-resistance area and OP target, both are overbought.

As a result, on GBP we see clear Evening star pattern at top, which suggests at least 3/8 retracement of recent thrust. By taking broader picture, this retracement could give us B&B "Buy" on daily chart. "CD" thrust has less amount candles than necessary, but they are strong, so, I suspect that B&B should be fine.
gbp_d_23_10_19.png


On 4H chart we have similar to EUR support levels structure. B&B, if it will be formed, should start somewhere around 1.27 level and WPS1:
gbp_4h_23_10_19.png


ON 1H chart we have similar AB-CD pattern again. The first target will be XOP at Fib support of 1.2820-1.2822 area. Then I do not exclude "spiky shoulders" H&S pattern. At least some bounce out from XOP should happen. Then action to 1.27, where, in turn B&B could start. That's our short term plans - sounds interesting but let's see what will be in reality.
gbp_1h_23_10_19.png
 

Sive Morten

Special Consultant to the FPA
Messages
12,648
Greetings everybody,

So, on EUR and GBP we're still watching for AB-CD shape retracement. Thus, today, despite that Gold shows nothing special, I still would like to attract your attention to interesting detail, that is not obvious. It will be very fast update ;)

On daily chart - take a look at pennant. Trend has turned bearish but price action is not, and is forming higher lows. This is sign of bullish dynamic pressure, guys. And price shows no reaction on grabbers. This is also interesting. We're talking about bullish sentiment on the market for the two weeks in a row, especially on weekly chart. It is just a question of time when upside action will happen. But now, on daily chart it seems that inner pressure is growing as trading range stands ultimately narrow. This energy sooner rather than later will needed to release.
How to trade it is really tricky question, as we do not have common tools that we usually use - patterns, levels etc. Thus, you need to invent something, or just wait when first explosure will happen. But in general, overall situation looks so that we need to wait just a little until breakout will come.
gold_d_24_10_19.png
 

Sive Morten

Special Consultant to the FPA
Messages
12,648
Greetings everybody,

So, gold has responded rather fast on our suggestion and upward action happened. At the same time, there are a lot resistance points ahead, so it is still a question whether we will get major breakthrough or not. But, this action is something at least, compares to previous two weeks of churning action:

gold_d_25_10_19.png


So, breakout is good but, gold is just under way to major 1520 resistsance. Thus, if you haven't taken position yesterday - today it would be better to not do it as we're coming to weekend and price stands near the COP target. Besides, we do not have any continuation patterns right here.
gold_4h_25_10_19.png


We suggest that another chance should appear as market shows the response to 1511-1519 resistance on next week. Others, who have taken long position already - don't forget to manage your stops.
 
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