XAUUSD, Daily               

Gold has been consolidating in a channel between USD 1240 – 1265 since the last US jobs report (NFP October 7). This consolidation was around the long term 200 DMA at 1256. The yellow metal has spent nine consecutive days below this important support level, suggesting longer term weakness. However, the breach and break of this key level and with a third consecutive up candle triggered a LONG position at USD 1267.00 on yesterdays (October 19) close. Should this move prove a true break out then an immediate short term Target 1 is at USD 1281.00, north of the 23.6 Fib level and close to the 20 DMA. Target 2 is at the 38.2 Fib level USD 1292.00 and longer term Target 3 would return Gold to north of 1300 at USD 1305.00.

The move back to 1300 level would suggest a weakening USD which is not evident at the moment. The Parabolic SAR remains negative, and the break out could fail as the RSI and Stochastics remains neutral.

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

XAUUSD, Daily              

Gold hit a two week high yesterday (September 21) following the FED rate announcement, and closed at 1335.18. Technically it broke up through and closed above the 20 DMA and the 50 DMA on the Daily chart. Although one strong candle does not an autumn move make, it was significant as it also closed above the 38.2 Fibonacci retracement level from the July high of 1374.89 and the August low of 1304.52.

The higher time frame Monthly chart remains bullish, whilst the Weekly chart is neutral and has support around 1315 and resistance at 1350. The Parabolic SAR remains negative and I expect some profit taking and a retracement from current levels, however a close above 1325 remains positive, following all the central bank announcements this week.  Additionally,  late September tends to be a strong time of the year for gold as the Asian wedding season starts in earnest.  An entry at 1333.40 was triggered with Target 1 at the psychological 1350.00, north of the Bollinger band and the 61.8 Fib level at 1348.00 and Target 2 below the July high at 1366.00.

The 1315-1310 zone should provide longer term support and below that 1304 and 1300.

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

XAUUSD, Weekly           

The impact of Brexit on the UK: Less than two weeks after the vote and, as Carney put it yesterday, the risks of the vote to leave the EU “have started to crystalize.” A YouGov CEBR survey this week found that 49% of the UK businesses it polled as being pessimistic on the economic outlook, up from 25% from before the referendum. The same pollster saw its consumer confidence reading fall to 104.3 in the days after June 23 Brexit vote, down from 111.9 for the first three weeks of June. There was also the news that three major property funds run by Aviva Investors, Standard Life and M&G have halted investor redemptions due to a lack of liquid holdings in what the former describes as “extraordinary market circumstances.” There are also growing anecdotal signs of slowing activity in such sectors as the housing and automobile markets. Most economists are anticipating a recession, driven principally by a drop in investment. Assuming this turns out to be the case, which we think it will, it will be interesting to see if this makes it politically viable for politicians to backtrack on Leave campaign promises to get a better trade deal with the EU, and whether sufficient momentum builds for a second referendum on EU membership.

The trade deal situation is far from clear the Norwegian solution will be the preferred from an economic view but the Norwegians have free movement of people, something the Leave group could not accept. A good old political FUDGE, (to “deal with something in a vague or inadequate way, especially so as to conceal the truth or mislead”) on principles and fundamentals is in the air once and if Article 50 is invoked (which now looks unlikely until January 2017).

How do we trade this situation? As ever financial markets are driven by fear & greed, sentiment, fundamentals and technicals. At the moment sentiment is THE main driver of Sterling and there are very high correlation trades available in this significant risk-off environment.

Yesterday I wrote “GBPJPY can trade lower still from these levels (134.00), the next Support is at 131.50, 128.50 and 125.60.  However, as we move lower these targets become more difficult to achieve. Momentum is to the downside and although technically oversold, never underestimate the power of fear and greed”.  The drive lower continued and first target support area was breached overnight.  Target 2 at 128.50 and lower down to 125.60 remain.

On Friday (July 1) I anticipated a retrace for USDGBP to 134.50 before 130.00 was reached during Q3. The retrace did not happen as sentiment overtook the technicals and 130.00, 129.00 and even 128.00 were broken, before a sharp retrace to the 129.800 level this morning.  Target 2 at 125.00 is still a target in the weeks ahead.  

The sentiment and mood of the post Brexit market has also encouraged the correlation trade. Gold and other commodities (particularly Silver and Copper) continue to rise and yield on government and corporate bonds plummet as prices rocket. Gold currently at 1370 has weekly target 1 1394 and 1428 further out.  Silver has upside targets at 21.06, and 22.19 & 23.00 further out.

As traders we require volatility, the Brexit vote has created that additional spike to volatility and until new levels are established, lows can get lower and highs can get higher.  The old adage “Trade what you see not what you think” and strict risk management are rules that come into their own in these very interesting times.     

Janne Muta

Chief Market Analyst

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.