(Melina Deltas, CFTe – XM)
EUR/USD hovers around the parity level again
EURUSD is moving back and forth of the 1.0000 psychological level, failing once again to surpass the descending trend line in the preceding week. The technical oscillators seem to be in confusion, as the MACD is holding above its trigger line in the negative region, while the RSI is ticking lower below the neutral threshold of 50.
If the price has a closing day below the parity level, then the focus should shift to the downside again, meeting the 20-year trough at 0.9863 ahead of the low in September 2022 at 0.9835. More downside pressures could open the way for the 0.9780 barrier before tumbling to the 0.9700 handle, registered in September 2022.
Alternatively, a move higher and a break of the 50-day simple moving average (SMA) at 1.0094, which hovers near the falling trend line could add to optimism for more bullish actions, meeting the 1.0200 and 1.0355 resistance levels.
All in all, EURUSD is appearing neutral in the very short-term timeframe, beneath the 1.0200 barrier and above the 20-year low of 0.9863. Only a climb above the long-term downward sloping channel may change the outlook to bullish.
Gold faces dim outlook as new resistance pops up
Gold resumed its bearish momentum early on Monday after Friday’s rebound off a 29-month low of 1,653 faded immediately around the previous low of 1,680. Strikingly, the latter overlaps with the 200-weekly moving average (SMA), which has been out of sight since the end of 2018.
In technical indicators, the bearish cross within the 20- and 50-day SMAs is endorsing the negative trend in the market. Meanwhile, the MACD is set for another downside extension below its red signal and zero lines, while the RSI and the stochastics, although close to their oversold levels, have yet to change direction northwards, all keeping the bias on the bearish side for now.
If the 1,680 resistance stands firm, the precious metal could slide towards the 1,640 barriers from February-April 2020. Breaking lower, the 1,600 psychological mark may attract special attention in fear that any violation at this point could quickly sink the price to the bottom of the bearish channel seen around 1,540.
Alternatively, a close above the 1,680-1,690 constraining zone could stage a new battle near the 20-day SMA currently at 1,712. Running higher, the price may next attempt to breach the 50-day SMA at 1,735 and successfully pierce the channel’s upper band at 1,750. Note that a former restrictive line is also passing through this area.
Summarizing, gold remains exposed to additional declines as the price is fighting a critical support-turned-resistance zone at 1,680. If the bulls cannot knock down that wall, the bears may further worsen the already dim outlook.
Gold to choose its path for years: $1160 or $2600
(Alexander Kuptsikevich – FxPro Financial Services Limited)
Gold’s timid attempts to push back from the lower end of a more than two-year range were foiled by a stiff market reaction to US inflation statistics. Gold plunged to $1660 on Friday, rewriting its low from April 2020, while buying has been rising for the last 19 months just after touching the $1680 area.
Notably, gold reversed sharply last month from the round level of $1800, which had acted as support several times between February and June. Thus, the gold bulls are one by one, giving away the technical levels that were significant before.
In addition to the consistent retreat from the horizontal levels, we note that the downwardly directed 50-day moving average has been acting as local resistance since June. Last week’s last downward momentum was precisely from this curve.
The move to higher timeframes generates even more worries about the outlook for gold. Gold closed last week a hair above its 200-week moving average. That was mainly due to Friday’s local bounce, as the bears were lowering profits from the big move. The start of the new week is under this curve. The fall under it in 2013 and the inability to get a foothold over it in 2016 were followed by a strong sell-off, which is a worrying sign now.
A test of the 200-week average is a once in a few years event that can set the trend for years to come, and the forthcoming Fed meeting this week provides a meaningful macroeconomic backdrop for this choice.
If the Fed’s decisions and Powell’s comments prove to be as adamant about fighting inflation as the markets now expect, we could see a repeat of the 2013-2015 pattern of gold’s failure. Back then, a breakout of the lower end of the sideways range in 2.5 years of the steady decline took more than 30% off the price. A similar failure will wipe out all of the gains from 2018, returning to the $1170 area over the next two years.
However, on our side, the odds are now slightly outweighed that the FOMC will shift the rhetoric towards easing, as the markets had expected since June. But they seem to have dropped that idea last week after the inflation report, and we note that it was quite a minor upshot. Moreover, long-term inflation expectations have already returned to normal. In addition, there are increasing signs that financial markets are under stress, which the Fed will also consider when setting policy.
Looking at financial markets in favour of the Fed indicates that the committee has slowed down asset sales from the balance sheet, increasingly deviating from its declared trajectory. Excessive stress on financial markets can effectively shut down the economy and turn around the labour market.
If the markets perceive current prices as profitable for gold and miners to buy, this week, we could see the formation of a long-term wave that could take gold above $2600 for the next two years.