Gold and Wall Street 30

Markets have entered a period of range bound trading activity with US equities returning to unchanged levels compared to where they were positioned twenty four hours ago. In that time markets sold off and recovered, with headlines driving the market which focussed on trade and the impeachment proceedings. The markets sold off as markets approached the key risk events this week and the Sunday deadline for tariffs on Chinese imports to the US. The selloff was accelerated by the unveiling of formal charges against the US President by the US House Judiciary Committee Chief Jerry Nadler. The Committee has charge the President with Abuse of power and secondly with Obstructing Congress. The next step is for the House of Representatives Judiciary Committee to vote on the charges later this week. If approved, the charges will be passed to the lower chamber for a full vote. The Democrats control this part of the process in the House, but an impeachment trial will be held in the Republican controlled Senate, possibly as early as January, where President Trump has majority support. Markets reacted with a risk off move but this was turned on its head because of a report that the US was preparing to let the Sunday deadline for tariffs to be placed on $160B of Chinese imports to slip. This was seen as a risk on move to allow the US into a better negotiating position as time goes by. US Commerce Secretary Wilbur Ross gave a statement saying that “There have been good discussions with China on intellectual property and "Phase One" deal will be largely about agriculture and trade, leaving most hard issues for later”. He added that after US completes China, USMCA deal, easy to turn attention to UK trade. This was where the market shifted its attention to the USMCA deal as Canadian and US officials headed to Mexico to sign the historic agreement between the North American countries. This sent markets even higher. Headlines reported that US President Trump had not yet decided on whether to delay the Sunday tariffs and this led to a drift lower in markets in the US session after the US 500 hit a peak of 3142.30. Presidential Advisor Larry Kudlow said that he could not confirm that the tariffs would be delayed and this was clarified by Trade Advisor Navarro overnight who said that, he has no indication that December tariffs on China will not go ahead and it was up to China as to whether a deal would get done. He added that the decision was President Trumps but that it will come soon. The focus on markets is now shifting to the FOMC decision this evening and the policy statement and press conference. This will be followed by the ECB rate decision tomorrow and the UK Parliamentary Elections. Reports from the UK suggest that polls are showing the Conservative lead slipping to within the margin of error of a hung parliament. This has created a move in GBP pairs with the GBPUSD pair selling off from 1.3200 to 1.3110 yesterday. Traders had been ruling out a hung parliament and this led to a rally in the pair but polls are now increasing the chance of a smaller majority.

There is a distinct lack of data releases this morning, with the US CPI data release kicking off the day ahead of the US open this afternoon. This will be followed by the release of Crude Oil Inventories. The FOMC Rate Decision and Statement will be released this evening alongside Economic Projections. The Press Conference will follow half an hour later.

Gold

The Gold chart shows that the precious metal is once again testing the 1460.00 area. The price action has moved off the 1557.00 highs to form a wedge pattern on the chart. The pullback remains confined within the context of the recent price action. This would require price to remain above the 1430.00 area in the short term and push to retest 1500.00. A breakout above the resistance at 1480.00 and the trend line at 1494.00 may target the 1500.00 level followed by 1516.80, which may open the way for a retest on the lower high at 1535.75 followed by the 1557.00 and 1600.00.

However a loss of the new lower low at 1445.65 and the 1450.00 area, where the higher low was produced, may indicate a more significant pullback to test the lower falling trend line and open up the 1420.00 region that extends down to 1400.00. This would potentially turn the bullish view on its head as a loss of 1400.00 may entice buyers to possibly trim their exposure. Price consolidated in this area with support at 1382.70 for much of June and July before breaking out in August. The 1350.00 area may also be used as support in the event of a deeper selloff.

Wall Street 30 Index

The Wall Street 30 Index fell at the start of the month from the high at 28161.00 and then found support to rally back to 28000.00 at 27323.00. The rebound has set up a range between 28040.00 and potential support at 27715.00. A loss of this support would see a move into the support of the old July high around 27400.00 and the new higher low at 27323.00. A loss of the 27000.00 may instigate a deeper selloff to test 26645.00 and possibly create a false breakout on the chart into December. 

Price action has carried the index back under the 28000.00 level with a pullback to build support at 27676.00 failing and price creating a low of 27323.00. A break back higher, may re-engage the 28000.00 level and seek to push price up to the highs. Resistance for the index has now potentially formed at the highs of 28161.00/28200.00 and a break back above this level may open the path for a test on the 28335.00. A move past this level may open the way to 28500.00 followed by 28850.0 as the price moves into uncharted territory. This would be followed by the 29000.00 level and the major round number at 30000.00.

Phillip Konchar

Core Spreads

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