This article was submitted by Michael Stark, an analyst at Exness.
Various shares and yields from American bonds made some gains early this week while crude oil corrected moderately on Monday as sentiment remained strong after a mostly decent NFP and some long-running trends seemed ready to pause. This preview of weekly data looks at XAUUSD and GBPUSD ahead of this week’s critical releases, inflation from the USA.
Last week the Reserve Bank of Australia’s decision to hold at 4.1% came as a surprise to many participants given that a single hike was priced in. The Australian dollar made losses against most major currencies in the aftermath. The Bank of England delivered with another single hike, taking the bank rate to 5.25%. This week the only relevant central bank for CFD markets deciding its new rate is the Banco de Mexico, which is expected to hold at 11.25%.
There has been no significant change in expectations for the Fed’s next meeting on 20 September, with around an 85% chance of a hold according to CME FedWatch Tool. That’s quite normal seasonally: August is usually the least active month of the year for financial markets. However, after Thursday’s data it’d be possible to see probabilities shifting as traders digest what US CPI means, what might happen at next month’s release and how both of these could affect monetary policy.
Other regular data this week include British GDP, US PPI and Michigan consumer sentiment and Chinese inflation. This isn’t a hugely important week of data for markets and it’s the middle of summer, so activity for many instruments is likely to be muted unless there’s a notable surprise from American inflation on Thursday.
In stock markets, major individual shares affected by earnings include Eli Lilly and Disney, followed by the DAX on Thursday as several major constituents report.
Friday’s news that the rate of unemployment in the USA fell unexpectedly to 3.5% was negative for gold even though the NFP itself missed the consensus slightly below 190,000. On the whole, the fundamental situation for gold at the moment is quite challenging because many participants and central banks are at least somewhat confident of a soft landing rather than a major recession, and various analysts are now expecting a general recession to occur no earlier than the first quarter of next year.
In the meantime, rates in the USA and some other countries are higher than inflation and nearly certain to remain so for at least the next few months. Since gold doesn’t pay interest, but usually costs money to store, this situation would usually hit deliverable demand for the yellow metal.
On the chart, movement in the last few weeks has been mostly consistent with the tone of the news and sentiment plus the expected lower volume in high summer. The 38.2% weekly Fibonacci retracement slightly below $1,890 remains the key support which is unlikely to be broken this month unless sentiment changes and upcoming data surprise.
In the short term though the main support in view is the 200-day moving average around $1,925. A range between there and $1,975 seems possible in the next few weeks, though this might contract around the 23.6% Fibonacci retracement if this week’s releases are more-or-less in line with expectations.
Bold indicates the most important releases for this symbol.
Tuesday 8 August
Thursday 10 August
Friday 11 August
Friday’s somewhat positive NFP has weighed somewhat on cable in early trading this week while some participants had also considered a double hike by the Bank of England last Thursday to be possible. Overall, traders seem to have reacted positively to the British government’s new plans to expand domestic production of oil and gas. The BoE was overall somewhat less gloomy too in last week’s press conference.
Inflation in the UK clearly remains stickier than most other large, advanced economies at 7.9% for the annual non-core figure in June. Next week’s release of British inflation for July is centrally important for the pound and for evaluating how the BoE might act on 21 September, the day after the Fed’s next meeting. Friday’s quarterly British GDP – although only a preliminary release – might see higher volatility continuing after US CPI on Thursday.
In the absence of any clear evidence that the uptrend is over, the bias on the whole remains to the upside for cable. 3 August’s dragonfly doji as the slow stochastic signalled oversold would usually be considered a strong buy signal in the context. Volume also appears to support a buy signal. If the releases later this week don’t deviate significantly from the consensus, this might be a good opportunity for new buyers to enter with a relatively lower risk compared to waiting for $1.295 or higher.
Bold indicates the most important releases for this symbol.
Tuesday 8 August
Thursday 10 August
Friday 11 August
Disclaimer: the opinions in this article are personal to the writer and do not reflect those of Exness or LeapRate.
