Gold and Wall Street 30

Markets are stable this morning as it digests a new series of headlines that may affect the economic outlook. Something that is going under the market’s radar is the legal action being brought in the UK after the Government decided to delay the injection of the second dose of the Pfizer vaccine. The Government decided to break from the instructions given based on the clinical trial and not give the second dose to recipients 21 days after the first in order to spread the scarce vaccines among a greater portion of the population. The legal case is being brought on three grounds, firstly that the decision is “contrary to the instructions for use” agreed by the UK regulator, the Medicines and Healthcare products Regulatory Agency and Pfizer. Secondly, it appears that there was not a lawful basis for the Government to depart from the MHRA’s assessment of the vaccine and Thirdly, it is a “breach of legitimate expectations”, with patients consenting to a course of medical treatment on the understanding they would be given a second dose after 21 days. The decision could delay the rollout of the vaccine in the UK as the country struggles with rising cases, an overwhelmed NHS and the logistics of the distribution of the vaccine. Meanwhile, around the world, more countries are imposing states of emergency and more severe lockdown measures that will have an economic drawdown. In the US there are growing whispers about the FED raising rates as inflation starts to tick higher. This is not having a material impact on markets yet but it is something to be aware of going forward. The US House of Representatives have voted to call on Vice President Pence and the Cabinet to remove President Trump from office by using the 25th Amendment. The Vice President has told the House leader Pelosi that invoking the 25th amendment is not in the best interest of the country. The next step will be for the House to vote to impeach the President which is expected to take place later today. The Japanese 225 closed down -0.38% today. The Hang Seng is trading lower at -0.1%, while the Shanghai Composite is trading up 0.05%. Gold is flat at 1950.00 while USDJPY is trading at 102.770. 

On the calendar today, ECB President Lagarde is due to speak at the Reuters Next online event. Eurozone Industrial Production is expected to decline to 0.2% from 2.1%. In the afternoon, US CPI is expected to rise to 0.4% from 0.2%. 

Gold

 

The Gold chart shows that the commodity created a parabolic move higher with the breakout in July, consolidated to set up a flag pattern and then made a move higher last week. Following the events mid-week the precious metal was pushed lower and has stabilized around 1850.00. The price is now trading back below the trend line after it failed to provide support. Price found support at 1817.00 on Monday and has traded up to 1862.00 where resistance has been strong. A break higher may test the trend line at 1891.00 followed by the 1900.00 round number. Further resistance may be encountered at 1915.00 and 1933.00, followed by 1950.00. Resistance may also be seen at 1975.00. The 2000.00 level was used and may form as resistance ahead of 2015.00, followed by 2032.50 and 2065.00 incorporating the high at 2075.00. 

At present 1850.00 and the 1817.00 area is acting as support. A loss of the 1800.00 round number/ trend line would potentially see a test on 1790.00, 1775.00 and 1764.00 as support areas. The 1750.00/1747.00 area may be used as support on a break below 1800.00/1790.00 and 1765.00. A loss of the 1700.00 area may provoke a test on 1694.00/1692.00 followed by the higher low at 1670.00. The 1640.00 area has been used as support on the chart and is followed by the 1600.00 round number and 1567.50 higher low. A loss of the lower support at 1557.00, may allow a test on the next level of support around 1535.00. This is followed by the 1500.00 area. Below this the new higher low at 1455.00 may be supportive and this is then followed by the 1400.00 area. A continued move to test the 1400.00 round number may indicate a more significant pullback to test the falling trend lines and open up the 1400.00 region. Price consolidated in this area with support at 1380.00 for much of last summer before breaking out. The 1360.00 area may also be used as support in the event of a deeper selloff. 

Wall Street 30 Index

The Wall Street 30 Index appears to be holding onto tenuous gains around the 31000.00 area. Price is currently trading at 31125.00 as it consolidates above the 30000.00 round number, but it is still creating higher lows and higher highs. Support may be seen at 30758.00. The high last month reached 30425.00 and this may act as support ahead of 30000.00. A loss of the higher low at 29875.00 may lead to some selling pressure. The 29425.00 area has been used as a higher low after a bout of risk aversion this week. A loss of the 29000.00 round number opens up a potential test on 28160.00 and the 28000.00 round number. Below this, the 27783.00 level comes into play with further support around 27000.00 followed by 26541.00 and 26285.00. Below 26000.00, potential support may be found at 25850.00 and 25500.00. A loss of these levels may push price back towards the 25200.00 area followed by 25140.00 and 25000.00 levels. These levels are then followed by 25000.00, 24900.00 and 24836.00 levels. There is also potential support at 24150.00 and 2400.00. Below these levels the 23500.00 area may be used as support. Further support may be seen at the 23200.00 area followed by 23175.00. The creation of a low at the 23000.00 area makes this level critical to the move higher, but if it gives way, the move down may open the way for a test on 22000.00 area, followed by 21370.00. The 22685.00 area may be supportive as a former resistance level. A break under the 20264.00 higher low may open the way to 20000.00. A break below this area may see a move into the support of the 19920.00. Below this, a loss of the 19000.00 area may instigate a deeper selloff to test the low at 18200.00.  

The price action shows that the index has rallied significantly in November but the rally decelerated in December. Resistance has been hard to find above 30000.00 as the new highs become marginal, but for now, the 31255.00 area may be of interest to market. Price action tested the 31180.00 and is slowly trying to make its way north by grinding higher and creating higher highs and higher lows. Therefore 31300.00 and 31500.00 are the next areas to watch from a resistance point of view. The 31800.00 level is followed by 32000.00. The market has entered uncharted charted territory and this is creating some hesitation, while traders may be quick to take profit if the fundamental dynamic changes. Equally a surge higher may lead to shorts being forced to cover their positions and price action can rapidly push into new all-time highs given the right mix of political and economic developments. A smooth transition to the new Presidential administration in the US will be key to this.

Phillip Konchar

Core Spreads

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