USD/JPY Weekly Price Forecast – US Dollar Stock in Tight Range Against Japanese Yen

The US dollar went back and forth during the course of the week, hanging around the ¥107 level yet again. This seems to be a bit of a magnet for price, as it is in the middle of the larger consolidation area between the ¥105 level on the bottom and the ¥109 level on the top. At this point, it looks as if the market is trying to pick the next direction, so you are better off simply waiting on some type of impulsive candlestick to get involved. Ultimately, I think that longer-term traders will probably continue to avoid this market, and quite frankly I think they probably should.

USD/JPY Video 01.06.20

When we do make that impulsive candlestick, then you can follow the market for a couple of hundred tics. Ultimately though, the market looks highly likely to see some type of decision eventually. At this point, this is a market that is probably easier to trade on short-term charts, as an investment would be a bit difficult.

Ultimately though, I do think that we will get that signal as to where we are going for the next 500 points, but right now we are not anywhere near making that decision so I would be cautious about putting too much money into this market in the meantime. If you are patient enough, you should get some type of trend to follow, but right now we clearly do not have land when it comes to these two currencies, which both are thought of as “safety currencies”, so it should not be a huge surprise.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Weekly Price Forecast – British Pound Has Strong Week

The British pound has rallied significantly during the week, reaching towards the 1.2350 level. This is an area that shows up a lot on shorter-term charts, as both support and resistance. If we can continue to grind higher from here, and we very well could, then the 1.25 level becomes in focus. That area I think would continue to cause significant resistance, so pay attention to that level if we get there, as it will certainly be a major fight.

GBP/USD Video 01.06.20

If we were to break above the 50 week EMA, which is just above there, then the British pound could very well go to the 1.30 level. Ultimately, this is a market that I think has to deal with the Brexit headlines next week, as negotiations start back up. It already has been a lot of chirping between London and the continent, as the chief UK negotiator recently stated that the “European Union needs to come a long way to have an acceptable agreement.” If that is going to be the case, I cannot imagine that good comes out of this.

Were in a downtrend anyways, so that should only help the downward momentum. However, it looks to me like the market is likely to continue to see a lot of noise, so be cautious about your position size, and be patient. You need to see some type of exhaustive candle to start shorting. If we break above and close above the 50 week EMA on the daily chart, then it is time to start buying. I think it is that simple.

For a look at all of today’s economic events, check out our economic calendar.

GBP/JPY Weekly Price Forecast – British Pound Resilient Against Yen

The British pound rallied during the week, breaking above the ¥132 level in a sign of strength. However, there is a lot of noise between here and the ¥135 level, so I think it is only a matter of time before we see some type of pushback. Keep in mind that the market has faced a lot of support underneath in order to bounce yet again. However, the most recent bounce before the one we are in now is lower, so that does suggest that perhaps there is still a lot of shorting going on out there.

GBP/JPY Video 01.06.20

The market has been rather tight as of late, so at this point I think we are waiting for a large impulsive candlestick in order to take some type of trade on. At this point, I believe that simply waiting to see where the risk in the world is will tell you what this pair should do. Quite frankly, I believe that the Japanese yen is considered to be “safer” than the British pound because not only do we have global issues, but we also have to worry about the Brexit which is not going anywhere, and we do in fact have to get through a slew of headlines that could cause major issues in that scenario.

With that in mind, I think it is more than likely going to be a scenario where we get a lot of choppy volatility, but I think the road higher is going to be difficult to achieve. A break above the ¥135 level could get this market moving to the upside quite quickly though.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Weekly Price Forecast – The Euro Explodes to The Upside

The Euro market rallied against the US dollar on the majority of the week, reaching towards the 1.1150 level before pulling back a bit early on Friday. Quite frankly, we are facing a significant amount of resistance just above and this is a completely messy chart at the moment. Yes, it is an extraordinarily strong and bullish candlestick that we have seen this recently, where the Euro exploded straight up in the air and then got slammed right back down.

EUR/USD Video 01.06.20

A lot of what we are seeing is a reaction “unified bonds” that the European Union is selling. In other words, Germany is backstopping Greece. With that, it should lead to a stronger currency, but at the end of the day the economic figures do not pan out for a stronger Euro. It is because of this that I think we will continue to see a lot of volatility, and therefore do not trust this rally quite yet. Beyond that, it is important to think of this as an indicator, showing you Euro strength or weakness in general.

I will use this chart tell me what to trade as far as direction is concerned in any EUR pair, but not necessarily this one. As I stated in my daily analysis, this sets up for a great indicator with the EUR/CAD pair, especially if crude oil continues to fall. However, I will keep you up-to-date as to what I see but right now I think we are to see a widening volatility regiment in this market, and that of course makes for nothing but headaches.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD Weekly Price Forecast – Australian Dollar Running Into 50 Week EMA

The Australian dollar has rallied significantly during the week, reaching towards the 50 week EMA which sits at the very top of the candlestick. If we pull back from here, it does make quite a bit of sense that the market could drift a few handles lower, because we are right where the massive break in support occurred. This is an area that at least from a technical analysis standpoint should be quite interesting for sellers, and therefore I think it will attract quite a bit of attention. Furthermore, with even more telling is that Donald Trump is coming with an announcement involving China heading into the weekend, and that more than likely will not do many favors for the Aussie dollar as well.

AUD/USD Video 01.06.20

That being said, if we were to break above the 0.67 level on a daily close, then I think we start to think about the market reaching towards the 0.70 level. Breaking above there would change the entire trend, something that I do not anticipate seeing. Yes, this has been an absolutely brutal bounce, but I think that in the end it is just that: a bounce. However, I am willing to follow the market and admit that I am wrong if we do break out to the upside.

Remember that the Australian dollar is overly sensitive to the Chinese situation, which of course could get overly complicated relatively soon. With that being the case, I think that the Australian dollar will probably take it on the chin. For what it is worth, the Aussie stock market looks absolutely horrible.

For a look at all of today’s economic events, check out our economic calendar.

Oil Mixed As Traders Hope For Extension Of Current Production Cuts

Oil Video 29.05.20.

U.S. Domestic Oil Production Drops By 100,000 Barrels Per Day

Oil remains under some pressure as the EIA Weekly Petroleum Status Report showed that crude oil inventories increased by 7.9 million barrels per day (bpd).

Gasoline inventories decreased by 0.7 million bpd while distillate fuel inventories increased by 5.5 million bpd. In general, the report painted a picture of a rather weak demand for oil.

Meanwhile, the U.S. oil production declined from 11.5 million bpd to 11.4 million bpd. The pace of the domestic production decrease has slowed down but the downside trend is steady.

I’d note that the oil market did not experience any major sell-off after the inventory news because oil is trading at low levels, so bad news are already included in today’s prices.

The previous major downside move which brought the WTI May 2020 contract into the negative territory was caused by the fears of running out of oil storage. Now that such fears have been eliminated, oil will need serious downside catalysts to return back to sub-$30 levels.

Russia And Saudi Arabia Continue To Discuss The Extension Of Existing Oil Production Cuts

The potential extension of the existing oil production cuts is the main topic of this week.

According to earlier reports, Russian Energy Minister Alexander Novak discussed potential oil production cuts with Russian oil companies.

However, another report stated that Russia wanted to increase its oil production in July instead of sticking to existing production cuts.

A new Reuters report suggested that Saudi Arabia wants to keep existing oil production cuts until the end of the year.

The original OPEC+ deal called for production cuts of 9.7 million bpd in May – June, followed by production cuts of 7.7 million bpd until the end of the year.

If the existing production cuts are kept until the end of the year, the oil market will get significant support.

As usual in these discussions about production cuts, Russia’s position may be a problem.

A Reuters report stated that Russia’s leading oil company Rosneft had trouble with supplying its clients with oil due to production cuts and that it wanted to increase production after June.

The next OPEC+ meeting is scheduled for June 10 so we’ll soon learn whether Saudi Arabia and Russia reached consensus regarding production cuts.

For a look at all of today’s economic events, check out our economic calendar.

Daily Gold News: Friday, May 29 – Gold at Yesterday’s High

The gold futures contract gained 0.09% on Thursday, as it extended its consolidation following bouncing off $1,700 support level on Wednesday. Gold has been trading within a downward correction after reaching new monthly high of $1,775.80 on Monday almost two weeks ago. Wednesday’s price action was quite bullish, but gold keeps extending over month-long consolidation, as we can see on the daily chart:

Gold is 0.6% higher today, as it gets back to yesterday’s high. Financial markets remain in risk-on mode, as stocks hover along their new medium-term highs. What about the other precious metals?: Silver gained 1.18% on Thursday and today it is 2.6% higher, platinum lost 1.14% and today is trading 0.4% higher. Palladium lost 1.61% yesterday and today it is 1.6% lower again.

The recent economic data releases have been confirming negative coronavirus impact on global economies. Today’s Personal Spending number release came out worse than expected. However, the Personal Income data was better than expected. The market will await today’s Fed Chair Powell speech at 11:00 a.m. We will also have a speech from President Trump today. Investors are now waiting for the Chicago PMI release at 9:45 a.m. There will also be Michigan Sentiment number release at 10:00 a.m.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for today:

Friday, May 29

  • 5:00 a.m. Eurozone – CPI Flash Estimate y/y, Core CPI Flash Estimate y/y
  • 8:30 a.m. Canada – GDP m/m, RMPI m/m, IPPI m/m
  • 8:30 a.m. U.S. – Personal Spending m/m, Personal Income m/m, Core PCE Price Index m/m, Goods Trade Balance, Preliminary Wholesale Inventories m/m
  • 9:45 a.m. U.S. – Chicago PMI
  • 10:00 a.m. U.S. – Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations
  • 11:00 a.m. U.S. – Fed Chair Powell Speech

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Two Steps Forward, One Step Backward in the S&P 500, Right?

Stocks defended the opening bullish gap, and scored further gains intraday before the sellers took over in the session’s final 45 minutes. Have we seen a turning point?

In short, that’s unlikely, and let me tell you why exactly I think so.

S&P 500 in the Short-Run

Let’s start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The day looked like the bulls were firmly holding the reins, but another daily setback struck as we approached the closing bell. I say daily, because the volume didn’t really overcome its recent highs, and stock prices haven’t suffered a profound setback either. All that the bears were able to achieve, was pretty much reminiscent of the stock behavior during the unfolding breakout above the 61.8% Fibonacci retracement.

In other words, yesterday’s setback isn’t really a fly in the ointment for the bulls. The daily indicators keep supporting the bulls, with no imminent sell signals. The sky still remains clear for the buyers for now.

Yesterday’s intraday Stock Trading Alert captures the key reason why:

(…) Against the backdrop of strengthening high yield corporate bonds (HYG ETF), the S&P 500 upswing has been progressing nicely throughout the day, and a local top in either seems to be very far away indeed.

While the sellers might try to close the week and month on a bearish note, the above words ring true also today because we haven’t seen junk corporate bonds falling through the floor. Let’s see precisely what I mean by that.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) gave up all their gains since the market open, but the relatively low volume of the daily upswing rejection continues to favor the bulls. While it wouldn’t come as a surprise to see a sharper consolidation of recent sharp gains, a running consolidation with higher highs and higher lows is all we’ve been getting so far. And that’s a very bullish type of consolidation, boding well for the credit markets.

In short, the credit market uptrend is well established, and serves as a tailwind for stocks.

The chart of the high yield corporate bonds to short-term Treasuries ratio (HYG:SHY) with the overlaid S&P 500 prices (black line), also supports the view we haven’t seen a game-changer yesterday.

Key S&P 500 Sectors and Ratios in Focus

While technology (XLK ETF) gave up its intraday gains, the swing structure of higher highs and higher lows, remains intact. And that’s the definition of what an uptrend is. The sector simply appears to be trading sideways, consolidating recent sharp gains. Yesterday’s lower volume versus the preceding higher one, sends a bullish message as buyers appear in droves when prices get lower.

Just as the tech sector, healthcare (XLV ETF) also supports the prospect of more gains to come. It’s been knocking on the door of April and May highs, and an upside breakout of the recent trading range is only a matter of time in my opinion.

The price action in the financials (XLF ETF) also follows a bullish path. We’ve seen volume rise during last three sessions, and yesterday’s session gives an impression of verification of the breakout above the April highs as the sector is consolidating recent gains.

The volume differential that favors the bulls is even more pronounced in the consumer discretionaries (XLY ETF). Real estate (XLRE ETF) for example, just extended its recent gains yesterday, disregarding the move lower in the index.

It has been only the leading ratios that suffered pronounced setbacks yesterday, as consumer discretionaries to staples (XLY:XLP) challenged their Wednesday’s intraday lows, and financials to utilities (XLF:XLU) moved below them already. But we haven’t seen what mathematicians would call an inflection point yet. In other words, it’s likely we’ll see both ratios stabilize and support the move higher in stocks next.

As for the stealth bull market trio, materials (XLB ETF) outperformed both energy (XLE ETF) and industrials (XLI ETF) as the latter two closed down – but again, on lower volume than during the preceding up days. Overall, this bull market trio still favors the stock upswing to continue.

Summary

Summing up, yesterday’s late-day reversal didn’t likely mark a call to start selling lock, stock and barrel everything in sight. Conversely, it appears to be a part of the ongoing consolidation that keeps resulting in higher highs and higher lows. As today is the last trading day of the week and month, the closing prices are of key importance for the timing of the anticipated challenge of the early March highs. While the credit market and sectoral analysis favor the stock upswing to continue, yesterday’s weak performance of the Russell 2000 (IWM ETF) is a short-term watchout. The balance of risks is skewed to the upside over the coming weeks though.

I expect stocks to slowly grind higher overall despite the high likelihood of sideways-to-slightly-down trading over the summer – but we’re nowhere near the start thereof. Right now, the breakout above the three key resistances (the 61.8% Fibonacci retracement, the upper border of the early March gap, and the 200-day moving average) is still unfolding with the bears running for cover and FOMO (fear of missing out) back in vogue. In short, the ball remains in the bulls’ court to show us what they’re made of. Will the weekly and monthly closing prices later today still lean in the bulls’ favor on higher timeframes? I would cautiously say so.

Last but not least, we’ll hear Powell speak later today, and Trump will focus on China. When the latter has been announced, it marked the start of the heavy S&P 500 selling 45 minutes before the closing bell yesterday. As tensions have been rising, the short-term direction in stocks very much depends on the overall balance of President’s announcement as regards Hong Kong, the Uyghur bill, coronavirus, the China-India border and foremost the trade deal. We’ll monitor and act accordingly on the unfolding developments.

We encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Silver Price Daily Forecast – Silver Gets To New Highs

Silver Video 29.05.20.

Silver Continues Its Upside Move

Silver managed to get above the resistance at $17.50 and gained upside momentum. The move is supported by gold price upside and weaker U.S. dollar.

Gold has managed to settle above $1700 per ounce as the increase in U.S. – China tensions drives demand for safe haven assets.

Gold/silver ratio has firmly settled below 100 and continues to decline. Before the coronavirus crisis, gold/silver ratio was below 90, so a possible return to pre-crisis levels could be very beneficial for silver.

The U.S. dollar continues to lose ground against a broad basket of currencies despite its safe haven status, and the U.S. Dollar Index has already tested the 98 level. Weaker U.S. dollar is bullish for silver as it makes it cheaper for buyers who have other currencies.

In the near term, silver’s price action will heavily depend on the global market reaction to the upcoming news conference of the U.S. President Donald Trump where he is set to unveil new measures against China.

If the markets will be in a bearish mood following the news conference, the precious metal segment may gain additional upside momentum as investors will increase purchases of safe haven assets.

Technical Analysis

silver may 29 2020

Silver managed to get above $17.50 and has good chances to develop significant upside momentum. The recent peak in RSI is yet to be reached, so silver should not have problems with momentum given the right catalysts.

If this upside move continues, the next resistance is located at $18.15. In case silver manages to settle above $18.15, it will gain additional upside momentum and head towards resistance at $19.00.

This level will likely serve as a material obstacle on silver’s way up since it’s the pre-crisis high of 2020. In fact, silver has tried to test the $19.00 level two times this year, and each such attempt failed. The last time silver traded above $19.00 was back in September 2019.

On the support side, silver will continue to get significant support near $17.00. The support at this level was so strong that a move below it may signal a change of a near-term trend for silver.

In case silver gets below $17.00, the next support area is located between pre-crisis levels at $16.50 and the 20 EMA at $16.60.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Pulls Back Toward Support Against Yen

The US dollar has broken down significantly against the Japanese yen on Friday, dropping about 80 pips by the time New York started. While that is not a huge move, it is relatively big for the last couple of weeks. The market stopped just above the ¥107 level and hung about there, so I think at this point it is likely that the area could bring some buyers in this vicinity, but if we were to break down below the ¥107 level, it opens up the possibility of a move down to the ¥106 level where we had seen a bit of a bounce.

USD/JPY Video 01.06.20

To the upside, the 50 day EMA continues to hang above the ¥107.75. A break above there opens up the possibility of a move towards the 200 day EMA, which at this point I think that the sellers would be an influence as well. Ultimately, this is a pair that continues to chop around, and it should consider that both of these are considered to be “safety currencies.”

Ultimately, that causes a lot of noise here so looking at this chart it is obvious that the volatility is going to continue to be a major influence, so it is difficult to trade this market for a bigger move until we get some type of clarity. I do not have clarity at this point, so it is short-term back-and-forth, probably in increments of 20 or even 30 pips. I would not put huge positions on here either.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Price Forecast – Euro Continues to Press Higher

The Euro exploded to the upside it over the last 48 hours, as the market has reached towards the 1.1150 level. This is an area where we have seen selling previously, but a lot of this is due to the European Union offering bonds that are backed by the entirety of the EU instead of the single countries. This should be stronger, and therefore people like the idea of the future of the Euro much more than they did just a few weeks ago.

EUR/USD Video 01.06.20

It is a remarkable move, but when you look at the last couple of months, we have seen massive moves in one direction or another. In other words, even though it is obviously bullish over the last several days, it is still difficult to get long of the Euro at this point, because we have seen this movie before, and have seen it recently. With that in mind I am a bit skeptical, and quite frankly will trade the Euro against other currencies.

I will use this currency pair as a bit of an indicator as to what I am doing with the Euro gets other currency such as the Canadian dollar, the Japanese yen, British pound, and so on. Obviously, the Euro is very strong in the short term, so buying the Euro gets is other currencies makes quite a bit more sense due to the fact that there is a lot of concern about negative headlines, so with that in the back of her mind, it is a bit difficult to be short the US dollar when you can short other currency such as the Canadian dollar that would take more of a hit in those scenarios.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Price Forecast – British Pound Tests 50 Day EMA

The British pound initially pulled back a bit during the trading session on Friday before turning around and smashing into the 50 day EMA. As we got there, the market did pull back a bit, and it should be noted that we continue to see a lot of noisy behavior overall. If that is going to continue to be the case, then I think it is only a matter of time before we see massive selling pressure. However, if we break above the 50 day EMA, then it is likely that we will then go looking towards the 1.25 level. At that point, I would anticipate seeing even more resistance.

GBP/USD Video 01.06.20

The market will continue to be very noisy, as we have a whole plethora of problems in the UK that will continue to weigh upon Sterling. The Brexit is still a major issue, and we have talks going on this coming week that will of course cause a bit of volatility as well. Ultimately, I do think that we pull back, and start going lower but it is probably going to take some type of headline to make that happen. The question is not so much in my mind whether or not we pullback, but if we do it here, or if we do it at the 1.25 level. With the leverage in Forex, timing is crucial, so if you do decide to short in this general vicinity I would do so with a small position. You can always add to a trade that is working out in your favor.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD Price Forecast – Australian Dollar Trying to Break Out

The Australian dollar has pulled back a bit to kick off the trading session on Friday, but then bounced as the 200 day EMA came into play. At this point, we are getting remarkably close to the 0.67 handle, an area that if we can break above, the market is likely to go much higher. At this point, it certainly looks as if the Aussie dollar is trying to take out the resistance and start a new trend higher, but one has to wonder what is going to happen between the United States and China? Clearly that is not going to be a good thing and with Donald Trump announcing a press conference late on Friday, we could see a sudden reversal. That being said, if the day closes above the 0.67 level, then it is likely that we continue to go much higher.

AUD/USD Video 01.06.20

This is a market that looks likely to have to make some type of significant decision, but at this juncture it is difficult to imagine that it is going to be easy. You need to be overly cautious when trading this pair, because once we make a move it is probably going to be rather drastic. Ultimately, I believe that the market will probably see some type of resolution, but clearly the market looks as if it is trying to break out to the upside. If this fails, it is right at where we had seen a major breakdown several months ago. In other words, it is decision time so therefore let the market decide and then simply follow.

For a look at all of today’s economic events, check out our economic calendar.

GBP/JPY Price Forecast – British Pound Continues Consolidation Against Yen

The British pound has initially pulled back during the trading session on Friday but has seen buying come in and push the market towards the top of the short-term range again. At this point though, the market still sees a lot of noise in general, so I do think that we are likely to see choppy trading back and forth. The 50 day EMA is sitting just above, and therefore it should be paid attention to. If the market were to break above there, the likelihood of a move towards ¥135 increases drastically. On the other hand, if the market were to break down below the ¥132 level again, one would have to think that the overall trend would come back into play, suggesting that we are going to go lower.

GBP/JPY Video 01.06.20

Having said that, there seems to be a lot of hope out there that as economies around the world open up, there should be an opportunity to pick up profits in general and therefore it should be more “risk on” that it has been. Perhaps the idea is that we had oversold everything to do with risk appetite, and therefore it makes sense that this pair pops. Ultimately, the market is at a major decision area, and therefore we should see some type of bigger move coming, so next week will be crucial. The 50 day EMA of course is an area that should cause some kind of barrier, so breaking above there will attract a lot of momentum traders.

For a look at all of today’s economic events, check out our economic calendar.

Price of Gold Fundamental Daily Forecast – Trump’s Announcement, China’s Response Sets the Tone

Gold is trading higher on Friday in reaction to lower Treasury yields and a plunge below long-term support by the U.S. Dollar. The catalysts behind gold’s strength are lingering U.S.-China trade tensions as traders cautiously await Washington’s response to the Chinese parliament’s approval of a national security law for Hong Kong.

At 12:26 GMT, August Comex Gold is trading $1745.60, up $17.30 or 1.00%.

The price action suggests that traders are betting against the U.S. Dollar ahead President Trump’s response to China’s tightening control over Hong Kong, which could worsen tensions between the two over the financial hub.

Traders fear that new U.S. sanctions against China might escalate into something more serious. If Trump announces more tariffs, for example, then look for retaliation by China. Both moves will put pressure on the U.S. and Chinese economies at a time when they are just starting to show signs of recovering from the impact of the coronavirus pandemic.

Moh Siong Sim, a currency strategist at Bank of Singapore, doesn’t expect Trump to come down too hard on China because of the state of economy. He said, “You can never quite predict Trump. But I think this year it’s really difficult for him to do tough action.”

Trump to Hold Press Conference

U.S. President Donald Trump is expected to hold a news conference on China later on Friday as his administration moves to pressure Beijing over its treatment of Hong Kong.

“People will be looking for guidance to see whether that could trigger further escalation between the two largest economies. After Trump’s speech, people will also be keen to see China’s response,” said Bank of China International analyst Xiao Fu.

“Even with many economies reopening, the economic status is still quite weak. So with this new geopolitical tension it means that recovery in many parts of the world can take longer, which could lift gold prices.”

Daily Forecast

The direction of the gold market the rest of the session on Friday will be determined by Trump’s announcement. A soft response by Trump to China could help the U.S. Dollar recover, pressuring gold prices.

But a tough response that garners a swift retaliation from China will likely drive the U.S. Dollar lower against the major currencies, which will be supportive for gold.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Stocks Mixed Ahead Of Trump’s News Conference On China

All Eyes On Trump’s News Conference

U.S. – China relations will be in the spotlight today as the U.S. President Donald Trump is set to unveil the country’s response to the new Hong Kong security law.

The worst-case scenario for the market is a decision to revoke Hong Kong’s special status. China has already warned that it will take any necessary measures if U.S. proceeds with its plans to put more pressure on China.

In turn, Hong Kong stated that the loss of its special status could pose problems for the U.S. economy.

It remains to be seen which measures will be chosen by the U.S. as it has to carefully weigh the impact of any additional pressure on China at a time when the world economy starts to recover from the unprecedented coronavirus crisis.

Personal Income Is Up 10.5% In April

U.S. has just released another portion of economic data.

Personal Income was up 10.5% in April compared to analyst consensus which called for a decline of 6.6%. Most likely, the huge government stimulus is the reason for this development.

Personal Spending was down 13.6% compared to analyst consensus which projected a decline of 12.6%. Not surprisingly, Personal Spending was hit by virus containment measures as consumers had to stay at home.

S&P 500 are flat following the release of new economic reports. Most likely, the market will focus on the above-mentioned press conference and the potential U.S. moves against China as they could have a material long-term impact on the world economy.

Oil Rally Takes A Pause

EIA Weekly Petroleum Status Report confirmed the data published in the API Crude Oil Stock Change report. According to EIA, oil inventories increased by 7.9 million barrels per day.

This means that the pace of the oil demand recovery is not as robust as previously hoped. This data has a direct impact on the oil market and oil-related stocks, but it also provides a chance to evaluate the pace of economic recovery since energy demand and economic activity are closely linked.

For a look at all of today’s economic events, check out our economic calendar.

 

Oil Price Fundamental Daily Forecast – Worsening US-China Relations Likely Source of Impending Volatility

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Friday with prices dragged down by weak U.S. fuel demand, fears of a second wave of coronavirus cases in South Korea and a worsening in U.S.-China relations. Nonetheless, the markets remain on track for a hefty monthly gain.

At 11:55 GMT, July WTI crude oil is trading $32.85, down $0.86 or -2.55% and August Brent crude oil is at $35.28, down $0.75 or -2.08%.

Both futures contracts are also in a position to post their first weekly loss after four consecutive weeks of gains that leave them set for the biggest monthly gains in years thanks to production cuts and optimism over Chinese-led demand recovery, analysts said.

WTI is on track for a record monthly gain of 72% in May, with Brent set for a 35% increase that would represent its strongest monthly rise since March 1999, Reuters said.

There are headwinds, however, which is likely the reason behind this week’s abrupt halt of the current rally.

“The global reaction to China’s move to propose new security laws for Hong Kong continues to increase, while there’s a score of new COVID-19 cases in South Korea,” said Rystad Energy’s head of oil markets, Bjornar Tonhaugend.

U.S. President Donald Trump is due to announce his response to the situation in Hong Kong later on Friday. His announcement is likely to be the source of volatility later in the session.

Despite US-China Issues, There are Positives

Thursday’s data from the Energy Information Administration (EIA) showed that U.S. crude oil and distillate inventories rose sharply last week. Fuel demand remained slack even as various states lifted travel restrictions they had imposed to curb the coronavirus pandemic, analysts said.

However, storage in Cushing, Oklahoma, the main delivery point in WTI, decreased by 3.4 million barrels, and refinery utilization also rose to 71% from 69%.

Additionally, producers have scaled back output at a record pace as plunging prices made operation uneconomical. OPEC and its oil-producing allies agreed to the steepest production cut in history during an extraordinary, multi-day meeting in April. Then, earlier in May, Saudi Arabia said that, beginning June 1, it would voluntarily cut an additional 1 million bpd, on top of its portion of the cuts agreed to by OPEC+. Kuwait and UAE were among the other cartel members that followed suit and said they would also exercise additional cuts.

Daily Forecast

The wild price swings seem to be behind us, but the market is still vulnerable to a steep retracement of the recent rally. Traders are now waiting for the next OPEC+ meeting to set the longer-term tone. However, over the short-run Trump’s announcement regarding China’s influence in Hong Kong is likely to set the tone. We’re looking for a near-term correction of the recent rally.

For a look at all of today’s economic events, check out our economic calendar.

Will the Fed Trigger Inflation This Time, Boosting Gold?

During Great Recession, many people feared that the Fed’s quantitative easing would trigger high inflation, or even hyperinflation. As we know, it didn’t happen. Why? Well, the main reason is that the Fed created money – that’s true – but in the form of bank reserves. And this is a very specific medium of exchange that does not enter the real economy like cash, but stays within the interbank market. You see, bank reserves are a special kind of money used only between commercial banks and central bank and between commercial banks themselves. So, larger supply of reserves does not therefore automatically translate into higher prices.

This can happen only if these additional reserves motivate commercial banks to expand their lending. Investors should remember that in the contemporary banking model based on the fractional reserve banking, the bank deposits account for the majority of the money supply. And when the bank deposits are created? They are created whenever banks grant loans.

As the chart below shows, the growth rate of credit supply was falling during Great Recession, reaching even negative values for some time. Why? For two reasons. First, American households have deleveraged, i.e., they decided to pay back the debts they had, so they were not interested in taking new loans. Second, as the name suggests, the global financial crisis was, well, financial crisis to a large extent. It means that banks were severely hit and they were left with a lot of toxic assets. So, banks themselves were not interested in granting new loans, rather they cleaned their balance sheets. Please also remember that the supervisors tightened the bank capital requirements in the aftermath of the Lehman Brothers’ collapse.

Chart 1: US bank credit (annual % change) from January 2007 to December 2010.

However, this crisis is different. The Fed and other central banks did not only introduce quantitative easing, but they also implemented other programs which can turn out to be more inflationary. For example, the US central bank will lend, under the Term Asset-Backed Securities Loan Facility, to holders of certain AAA-rated securities backed by newly and recently originated consumer and small business loans. Moreover, the new Main Street Lending Program set by the Fed in April works like this: commercial banks grant loans to small and medium companies employing up to 10,000 workers or with revenues of less than $2.5 billion, and then they retain 5 percent of the loan on their balance sheets but sell the remaining 95 percent of the loans to the Main Street facility created by the Fed.

All these programs aim to support the flow of credit to employers, consumers, and businesses, encouraging commercial banks to grant new loans to companies that have suffered as a result of the economic lockdown. Moreover, the financial sector has not been hit initially by the coronavirus crisis, while the supervisors eased reserve and capital requirements for banks. The demand for loans from entrepreneurs is also vivid. All this means that the pace of growth of credit and money supply may be higher than during the Great Recession. Indeed, as the chart below shows, they accelerated in March and April.

Chart 2: The annual % change of the US bank credit (green line) and M2 money supply (red line) from January 2019 to April 2020.

 

Summing up, the unconventional monetary policy implemented in the aftermath of the Great Recession did not spur inflation. However, this time may be different. To be clear, we are not saying that we will see hyperinflation in the US. That’s still very unlikely. What we mean is that the commercial banks are – so far – significantly more eager to grant new loans. So, the resulting increase in money supply should create higher inflation after some time, if other factors remain unchanged.

In other words, this crisis is more likely to result in stagflation than the Great Recession, especially as economy faces disruptions in the supply chains. Indeed, please take a look at inflation expectations derived from the 5-year inflation-adjusted Treasuries displayed in the chart below – as you can see, the market does not expect deflation now, as it did in the aftermath of the previous economic crisis.

Chart 3: US 5-year breakeven inflation rate from January 2007 to April 2020

Given that gold is considered to be an inflation hedge, the higher odds of inflation are fundamentally positive for the gold prices. It does not mean that disinflation or deflation would be negative for the yellow metal, as it could shine nevertheless during the crisis of any kind, but increased chances for stagflation should be an additional factor that could encourage more investors to buy gold.

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

GBP/USD Remains Well-Supported on a Broadly Weaker Dollar

A strong appetite for risk has weighed on the dollar and all of the major currencies have gained against the greenback this week as a result. The British pound, however, has gained less than most of its counterparts as concerns over Brexit and further monetary policy easing in the UK has weighed.

The session ahead is expected to be a volatile one. Here are some of the scheduled risk events:

  • US President Trump will hold a press conference regarding China. The announcement was made late yesterday which has triggered some risk aversion
  • Fed Chair Powell will speak later today. It will be his last chance to speak before the mandatory blackout period ahead of the June 11 meeting.
  • The US will release its latest PCE index figures.

In addition to the scheduled risk events, trade adjustments are typically made at month-end which stands to further impact the markets today.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD has been underpinned by a weaker dollar as the US dollar index (DXY) has fallen to lows not seen around the middle of March in early trading today.

While the pound to dollar exchange rate has benefited from this weakness, the pair is seen struggling to gain following a bullish break above a horizontal level at 1.2266.

This level is considered important as it acted as support in late April and early May and then proved to be a big hurdle last week.

So far, sellers have stepped in near 1.2350 with the 200 moving average on a 4-hour chart near there to create an obstacle for bulls.

A break above it shows further resistance at 1.2400 followed by 1.2476.

The pair was supported by a rising trend channel yesterday and once again shows upward momentum, but traders looking to take advantage of a weaker dollar may be better off looking at other currency pairs.

Key support for the session ahead remains at 1.2266 as the lower bound of the trend channel on a 4-hour chart is converging to the level. While above it, the next target for GBP/USD falls at 1.2398.

Bottom Line

  • GBP/USD has fallen into a range but holds above key support to maintain a bullish outlook.
  • The session ahead is expected to be volatile with several risk events and potential month-end trade adjustments that stand to move the markets.

For a look at all of today’s economic events, check out our economic calendar.

Brent Oil and Gold With Interesting Setups

In today’s analysis, we will focus on commodities: Gold and Oil. In the previous months, Gold was climbing has been mostly moving higher and oil has been declining. Despite the most recent rise in the price of Brent and a small decline in the price of gold, we think that we are about to see a comeback to the dominant trend. In both cases, gold has a nice bullish signal and oil is drawing rather bearish pattern.

First, lest start with Brent Oil, where its price has doubled since the end of April. In the last two weeks, the upswing stopped and the price is creating a head and shoulders pattern. The price is creating the right shoulder of the pattern. The main up trendline was already broken but the neckline is still intact. In this case, the price breaking the neckline can be a nice selling opportunity.

The second instrument is Gold, where the price is currently breaking the upper line of the flag formation. The flag was a correction in the bullish trend, so it promotes another wave up. The real, legitimate buy signal will be triggered, when the price will break the horizontal resistance at 1735 USD/oz.

The last instrument is not a commodity but the USDJPY pair which is definitely worth mentioning. This Friday is crucial for this pair as the price has managed to escape from the recent sideways trend. Sellers broke two up trendlines and the lower line of the rectangle pattern. Currently, we are testing this last support as a resistance. The test so far is positive for sellers, which may indicate a willingness for a further slide. Sentiment here is negative.

For a look at all of today’s economic events, check out our economic calendar.