Technical Analysis

Spot Gold: Retail trader data shows 65.8% of traders are net-long with the ratio of traders long to short at 1.93 to 1. The number of traders net-long is 2.0% lower than yesterday and 2.0% higher from last week, while the number of traders net-short is 2.5% higher than yesterday and 14.8% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Spot Gold trading bias.

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Gold: Long-Term Resistance, Short-Term Support Ahead of FOMC

The markets are assuming a strong probability of getting a hike at the the Federal Reserve’s March rate meeting with odds currently reflecting a 94.4% chance for 25 basis points of tightening. But this has been long known as the FOMC has been fairly clear with their intentions to further normalize policy. The bigger question, however, is what’s on the bank’s slate for the rest of the year. A total of three hikes has long been the central expectation, but after Mr. Powell’s testimony in-front of Congress earlier this month, the idea of four hikes started to more prominently enter the equation; and as we sit 24 hours ahead of tomorrow’s expected rate hike, those odds for four hikes in 2018 are sitting at 38.3%.

This is relevant for Gold prices as a longer-term trend has started to come into question after running into a big batch of resistance. The price of $1,357.50 marked last year’s high in Gold, and the year before that saw a high print of $1,375.15. We tested that zone just a few weeks into the New Year and then again a couple of weeks after that; but, to date, bulls have been unable to make much ground.

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Spot Gold: Retail trader data shows 69.7% of traders are net-long with the ratio of traders long to short at 2.3 to 1. The number of traders net-long is 15.4% higher than yesterday and 0.3% higher from last week, while the number of traders net-short is 28.2% lower than yesterday and 10.0% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Spot Gold-bearish contrarian trading bias.

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Dow Jones Bullish Breakout Continues to Fresh Two-Month Highs

US stocks continue to show strength after the February pullback helped to build-in congestion formations across a number of indices. In the Dow, we looked at a bullish setup on Tuesday of this week, and prices have promptly took out both topside targets as buyers have continued to drive. This led to a bullish break of the symmetrical wedge formation that we've been following; along with a print of fresh two-month highs as buyers have remained in-control.

At this stage, those looking at longer-term strategies would likely want to await some element of pullback before looking to continue the move as the short-term formation here is quite stretched. The prior high could be of assistance, and this takes place at 25,078. This can be connected to the psychological level of 25,000 to produce a potential support zone that could be utilized on a pullback to open the door for bullish strategies.

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GBP/JPY Reverses After Earlier-Quarter Breakout

It's been a big start to the second half of the year for the Japanese Yen. After opening into Q3, Yen weakness showed against a number of currencies, the British Pound included - and this helped GBP/JPY to make another approach at the 150.00 level. But, just as we saw in early-June, resistance came-in on the underside of the 2017 bullish trend-line, and prices promptly reversed. GBP/JPY has dropped every day of this week Monday thru Thursday, bringing to question the possibility of continued upside in the pair.

This week's pullback in GBP/JPY price action wiped out as much as 50% of the bullish move that started in late-May. The 50% marker of that move started to get tested yesterday, and after a quick breech below earlier this morning, buyers have pushed prices back-above the 146.26 area on the chart.

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Gold has plummeted more than 14% off the January highs with price registering fresh yearly lows into downtrend support this week. Today's response to technical support threatens a near-term recovery in price with momentum extremes and shifts in trader sentiment further highlighting this risk. Here are the updated targets and invalidation levels that matter for Gold.

Gold prices are poised to close lower for a sixth consecutive week- the last four instances of such an occurrence were at the December 2016 lows (down 7-weeks), the November 2015 lows, the August 2015 lows (down 7-weeks) and the July 2010 low. In each of these instances, price advanced a minimum of 9% in the following weeks. With that in mind, momentum is still deep in oversold territory and while the broader risk is still lower - IF price is going to rebound, this would be a good spot to look.

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Gold finally breaks tight trading range

Gold was heading for its smallest monthly trading range since July 1996 at only 2.07% from low to high, but yesterday’s move edged gold out of the range. Nevertheless, it’s still been an unusually tight set of trading conditions, and with gold pushing down out of the range we should be in for vol expansion.

It’s possible this is a fake-out jab lower before reversing higher, but we’ll run with a breakdown first and then react accordingly should price action warrant a higher low scenario from August. The next levels of support are the August capitulation-day close at 1174 and then the day low at 1160.

If things start to real heat up and gold sinks below last month’s low, there isn’t anything solid until near 1120, the December 2016 low. In the near-term, the bottom portion of the recent range in the vicinity of 1187/90 should cap a bounce if the breakdown is to remain valid.

Silver headed for bear-flag breakdown

Silver is of course not looking to healthy either, but is showing some relative strength compared to its yellow counterpart. Even as such, it still doesn’t look very healthy with a bear-flag forming following a failure to hold above the August low. Look for it to undercut the monthly low here soon. Big support arrives not far below at the December 2015 low of 13.65.

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Dollar hits 11-month high vs. yen as upbeat U.S. data, hawkish Fed boost yields

The dollar stretched an overnight rally to touch 114.55 yen , its highest since early November 2017. It last stood at 114.345. A rise above 114.735 yen would take the U.S. currency to its highest level since mid-March 2017.

"Currency bears dependent on a dollar-selling strategy have been repeatedly forced to buy back the dollar at ever higher levels over the past months."

The euro was 0.05 percent lower at $1.1469 (EUR=) after slipping about 0.6 percent on Wednesday.

Before caving in to the dollar's broad surge, the single currency had climbed to $1.1594 earlier on Wednesday on reports that Italy plans to reduce its budget deficit over the next three years.

The pound was steady at $1.2933 following a dip overnight to a 3-1/2-week low of $1.2925.

The Australian dollar extended overnight losses, slipping to a three-week trough of $0.7091.

Dollar boosted as U.S. Treasury yields hit 7-year high

The dollar stood tall on Friday against its major peers, including the yen and euro, as investors evaluated the impact of a two-day global government bond rout that has lifted U.S. Treasury yields to seven-year highs.

The dollar rose 0.1 percent to 114.04 yen after coming off an 11-month high of 114.55 yen reached during the previous session. A rise above 114.735 would take the greenback to its highest level since mid-March 2017.

The breakout above yearly down-trend resistance in Gold has fueled a rally of nearly 4% off the monthly lows with the advance failing just ahead of a key resistance range in price. These are the updated targets and invalidation levels that matter on the XAU/USD charts.

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