Gold and Wall Street 30

The event that trader have been waiting for is finally upon us, with today’s signing of the US-China Phase One trade deal. Markets are calm at present but the democrats in the US House of Representatives have also chosen today to send the impeachment papers to the Senate. The political drama in Washington is increasing as the 2020 US Presidential Election looms and this is a major event for markets for the remainder of this year. The Japanese 225 has closed lower by 0.45% in anticipation of the signing later today in the US Capital. The signing ceremony is scheduled for 16:30 GMT and traders will be looking for clarity on the details of the deal from China and the US. There has been a lot of comment in the financial media on how the deal is low on detail and this according to some analysts may set up a “buy the rumor, sell the fact” scenario. Stocks have pulled back off the highs overnight but remain close to record all time high levels created this week. Much of the known detail has been priced in but it also has little in the way of economic impact. The decision by the US to not label China as a currency manipulator has more of a political impact than a market impact. But this does set up the right tone in sentiment heading into today’s signing ceremony. The catch so far has been the announcement that there will be no tariff relief from the US until Phase Two is agreed. This delays one of the positive impacts on the economy and throws the timeframe on removing tariffs into doubt. So much is left unknown to the wider market that the mitigation of risk surrounding the deal from a trading perspective becomes onerous. The markets have rallied for a little over a year since the December 2018 low and this may all collate to give traders a reason to take some profit off the table if healthy details are not forthcoming to inspire the market to new highs. Sources have reported that the Chinese are to buy $50B in energy, $32B in farm products and $35B in services over the next two years as part of the deal but these figures are still vague and may create an illusion unless they can be implemented. The worry is that the global slowdown partially caused by the trade tensions may already be unstoppable after a decade long expansion. The text agreement is expected to be released simultaneously or soon after the signing of the deal and this will provide traders with a key insight into the real economic impact of the agreement.

UK MPC Member Saunders is set to speak in Northern Ireland this morning. The UK CPI data is expected to remain at 1.5%. Eurozone Industrial Production is expected to rise to 0.3% from -0.5% while the Trade Balance is forecast to fall to 22.3B from 24.5B. In the afternoon, US PPI is expected to rise to 0.2% from 0.0%. Crude Oil Inventories are forecast to fall to 0.4M from 1.2M. FOMC Members Harker and Kaplan are also scheduled to speak later this afternoon.

Gold

The Gold chart shows that the precious metal has been used as a store of value in turbulent times. The chart shows how the price has rallied to test above 1600.00 as tensions increased but the price has retraced lower as concerns abated. The price action has moved to consolidate around the 1550.00 level with the 1535.95 level as support. A breakout above the resistance at 1563.00 may target the 1600.00 level again followed by 1611.50, which may open the way for a test on the 1650.00 level followed by the 1670.00 and 1700.00.

However, a loss of the support at 1536.00 may allow a test on the new higher low at 1516.75 and the 1500.00 area and this may indicate a more significant pullback to test the falling trend line and open up the 1472.00 region. This would potentially turn the bullish view on its head as a loss of 1500.00 may entice buyers to possibly trim their exposure. Price consolidated in this area with support at 1460.00 for much of November and December before breaking out in recent weeks. The 1450.00 area may also be used as support in the event of a deeper selloff.

Wall Street 30 Index

The Wall Street 30 Index fell back from a fresh high of 29055.00 overnight potentially creating a double top at that level. Support at the old high of 28920.00 is being tested at present and this is keeping price elevated. This may see a rally back to the 29000.00 area. A loss of this support may open the way for a test on 28770.00, triggering a double top and opening the way for a test on 28545.00 below. The 28120.00 level may be supportive below this. A break below this area may see a move into the support of the 28000.00 round number and the July high at 27400.00. Below this, a loss of the 27000.00 round number may instigate a deeper selloff to test 26645.00. 

Price action has carried the index back to fresh highs after a pullback to build support at the low of 28769.00 yesterday. A break back higher may push the price to re-engage the 29000.00 level and allow price to push up the highs. Resistance for the index has now potentially formed at the highs of the 29055.00 level and a break back above this level may open the path for a test on the 29500.00. A move past this level may open the way to 29800.00 followed by 29950.0 level as the price moves into the 30000.00 zone. This level is the major round number at 30000.00.

Phillip Konchar

Core Spreads

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