Gold and Wall Street 30

Markets are digesting the recent moves this week with an element of calm having returned after the seesaw price action of recent days. A selloff in equities has been avoided for now as bond yields retraced from their high levels. The markets are in at risk on mode after overnight trading despite some caution in yesterday’s US session. Sentiment in the US has taken somewhat of a hit from the rising bond yields and equities in the US are more subdued. There is a general feeling that the rise in bond yields could resume at any time and this is keeping a brake on equities pushing and breaking out to new all-time highs. FED speakers have written of the rise in yields as part of their goal of having a 2% inflation target while the market as a whole is looking ahead to FED Chair Powell’s speaking engagement on Thursday and the Non-Farm payrolls data release on Friday. Elsewhere the ECB, RBA and the BOJ have been more proactive from the point of view of highlighting their displeasure with rising bond yields and have said that they stand ready to intervene should the need arise.  This has calmed the market somewhat but all eyes and ears are focussed on the FED for signs of their reaction. Overnight BOJ’ Kataoka said that the BOJ must respond with flexibility if Japanese yields keep rising, adding that conditions have not reached that stage yet. He said that the recent rise in US yields partly reflects hopes for fiscal policy and the vaccine rollouts. He added that it is hard to foresee inflation approaching 2% given that the pace of economic recovery will be modest. In the UK Chancellor of the Exchequer Sunak has said that they will extend the furlough scheme for workers until the end of September. Employers are going to pay 10% of the cost of the scheme in July, rising to 20% in August and September. In the US President Biden has said that every American should be offered a vaccine by the end of May. It comes as news has been reported that Johnson and Johnson are producing vaccines 24 hours a day seven days a week shortening the US target for vaccination by two months. The Japanese 225 closed higher by 0.51% today. The Hang Seng is trading up 2.0% and the Shanghai Composite is up 1.7%. Gold is trading at 1728.00 while USDJPY is trading at 106.820. 

On the calendar today, Services PMIs are being released, with UK Final Services PMI expected to remain at 49.7 as previous. UK Annual Budget will be released later today. US ISM Services PMI is expected to stay at 58.7. 

Gold

The Gold chart shows that the commodity has fallen back lower in recent days. Following the breakout the price was pushed lower back under the trend line and is below 1800.00 once again after finding support at 1707.00. The price is now trading below the trend line after it failed to provide support on the breakout in January. Price found support at 1707.00 and 1700.00. The 1750.00 and the 1763.00 area may act as resistance followed by 1775.0 and 1800.00. Resistance may appear around 1815.00 followed by 1825.00.  The 1840.00 level is where the trend line is positioned today, with more resistance at 1875.00 and 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 1718.00 and the 1707.00 areas are acting as support. 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 above the 31000.00 area. Price is currently trading at 31580.00 as it continues to push above the 30000.00 round number, and it is still creating higher lows and higher highs. Support may be seen at 31240.00, the 31155.00 area, and 31000.00 followed by 30615.00. The high in December reached 30425.00 and this may act as support ahead of 30000.00. A loss of the higher low at 29660.00 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. The selloff at the end of January has been mainly retraced in February and price is making new highs. Resistance may be seen at 31600.00 followed by 31700.00 ahead of the 32000.00 area. The 31720.00 marked the high yesterday. The 32000.00 level is potentially followed by 32300.00. The pace of the rise is now important to watch in the coming days. 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. 

Phillip Konchar

Core Spreads

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