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Swiss voters and DXY weakness helped Gold to rally

Gold has rallied as news agencies focus on an upcoming vote in Switzerland. The country is set to become the third largest holder of Gold, if, on 30th November, voters choose to increase the country’s gold reserves. If the yes vote wins, the country will increase its Gold reserves from the current 1,500 metric tons to 2,500 metric tons over the next five years. This purchasing program would increase demand for gold substantially. About 300 tons per year would equal about 7 percent of annual global demand. At the same time, it is reported that the Asian demand for Gold stays strong with India’s export growing as much as 280% year on year (October 2013 to October 2014) according to figures released by the Indian government. This is reported to be due to lower prices and increased optimism surrounding the Indian economy. Meanwhile in developed economies, the list of bad economic news is on the increase. Now that Japan has surprised everyone by dipping back into recession, while the euro zone is not far from recession either, a warning from a major European leader (David Cameron, UK prime minister) about global economic risks, makes investors more security oriented. The actions of Russian president Vladimir Putin in Ukraine and the fact that he felt it necessary to bring warships to the G20 meeting are not helping to stabilise the economic climate and the ever-so-fragile trust that is needed to keep the nations of the world trading with each other and the world economy growing.

Gold and DXY, weekly

DXY and Gold, Weekly

Gold buyers are eager to react as soon as DXY momentum fades. A week ago, on Monday 10th November, I wrote in my analysis on EURUSD: “The pair is now between resistance and support. EURUSD has reached a weekly pivot high from July 2012 and reacted higher from it. At the same time we have the September weekly low right above us. That should keep the downward pressure on EURUSD and limit moves higher from the current levels. In light of the above it is reasonable to expect to have EURUSD fluctuating between the support and resistance over the coming week.” This is exactly what has happened since then and has obviously meant significant slowdown in the upward momentum in the Dollar Index (DXY). As readers might recall, the heaviest weighted currency in the mix is the euro. Therefore, what the euro is likely to go through, is a mirror image of what happens with DXY. Whenever, the US Dollar goes up, there is a big likelihood that Gold will fall lower and vice versa. There are periods when this inverse relationship is broken but in general it is more likely that dollar strength means lower Gold prices. All this basically means that when the euro is at a major support it is likely that Gold will also experience a slowdown in downward momentum. This is clearly visible in the above weekly chart displaying both Gold and DXY.

Gold Weekly

Gold, Weekly

Now that we have a slowdown in DXY upward momentum, Gold has rallied to the weekly resistance level (former support) and as per usual we are now expecting this level to act as a resistance. The nearest major weekly resistance and support levels are: 1192.47 and 1145.50 respectively. The last two weekly candles are hammers which usually indicate institutional buying but the fact that this buying now happens at levels right below a major former support level (now resistance) and in the context of Gold trending lower it takes more that these two candles to convince me that we have seen the bottom in the price of Gold. Bottoming is a process and usually happens over a longer time period. However, it is worth bearing in mind that the Fed might at some stage want to lower the dollar by another QE program and such a news piece would have the potential to turn many asset classes around in a very quick fashion.

Gold Daily

Gold, Daily

The price of Gold has reached 50% Fibonacci level that coincides with the former support level at 1192.50 and the daily candle has reacted lower from the level today. Fibonacci cluster analysis gives us two areas of importance (areas where several Fibonacci levels cluster together). The nearest one is right below the current price action between 1176.50 and right below today’s low at 1181. It also coincides with a pivot candle high (also a weekly high from two weeks ago) at 1179. This very likely explains the range bound behaviour we’ve seen today. The other cluster is between 1228-1235 and coincides with a gap. Therefore, I believe this level has real potential to act as a good resistance area should the price rally there without some bottoming process first. It makes sense to setup an alarm to just below this level so that you are aware of it and can monitor price behaviour (look for shooting stars and bearish wedges in intraday resolutions).

Gold 60 min

Gold 60 min

The price of Gold is breaking lower from a failed ascending triangle with increasing weakness in Stochastics. The minor intraday supports is at 1167 and weekly low 1145.

Conclusion:

Gold is at a major resistance in the context of down trend. Look for shorting opportunities with initial targets at weekly lows (1146 and 1130)

Disclaimer: 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 purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

Monday, 17 Nov, 2014 / 3:47

Source : https://blog.hotforex.com/swiss-voters-and-dxy-weakness-helped-gold-to-rally/

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