In the short term, it looks like a pullback is more likely than not, so I would not be surprised to see traders take profits heading into the weekend.

• The gold markets have gone back and forth during the session on Thursday, as we are sitting just below the $1800 level.
• Keep in mind that the gold markets have hit a major area of resistance, and it would make a certain amount of sense that “market memory” comes into the picture.
• If we break down the 50 Day EMA underneath, then it could open up further selling.

 

Looking at the bond market, interest rates had dropped quite significantly, and that makes gold much more attractive as yields in the paper market do not offer as much of a return. That being said, I would be a bit hesitant to jump into this market right away, because there’s so much noise in the bond market. After all, the bond market drives everything, as it can give you an idea as to whether or not there is a lot of risk-taking out there, or if people are running for safety.

The one nice thing about the candlestick during the day on Wednesday is that breaking above it is a clear sign of strength, and a lot of people would probably jump into the market at that point. The $1800 level of course is a large, round, psychologically significant figure, and it would attract a lot of headline noise. However, it’s not really until we break above the $1815 level that we clear all of that. If that happens, I would anticipate the gold would go looking to the 200-Day EMA.

On the other hand, breaking down from here could open up and move down to the $1750 level, which is an area that previously had been resistant. In general, when you look at this market you can see that there has been a lot more volatility as of late, and it suggests that we are in fact going to continue to see noisy behavior, perhaps a pullback. We are still very much in a downtrend, and you should keep that in the back of your mind. If yields start to rise again, that will put a lot of downward pressure on gold, just as the opposite could send it higher. In the short term, it looks like a pullback is more likely than not, so I would not be surprised to see traders take profits heading into the weekend.

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The USD/JPY currency pair started from the support level of 130.40 to the resistance level of 135.50 on Friday, after the announcement that US job numbers were stronger than all expectations. It removed many of the expectations of a recession in the US economy in light of high aggressive US interest rate by the Federal Reserve. The USD/JPY closed the week’s trading, stable around the 134.98 level. Following the weekend’s data, the bulls may find the opportunity to run further higher.

Commenting on the US data. Richard Flynn, managing director at Charles Schwab UK, said US employment data looks solid, but looking a little deeper reveals a mixed picture of the job market. “While US unemployment is still very low, the reason may be low labor force participation rather than the booming economy,” he added. Investors will realize that the unemployment rate is a lagging indicator that was always low at the start of a recession. And in fact, the broader economic indicators have weakened recently.”

If the market approaches this view, the possibility of a dollar rally may stop. However, the same report showed wage growth of 0.5% month-on-month in July and an annual growth rate of 5.2%. For his part, says economist Knut A. DNB Markets’ Magnussen: “Wage growth is higher than what would be consistent with an inflation rate of 2%, and a strong case for further rate hikes going forward.” Paul McKelle, FX analyst at HSBC, said: “We think the Fed is not done hiking yet while global growth momentum is clearly deteriorating. Therefore, we are updating our forecast to increase the upside in the US dollar.”

HSBC has therefore updated its dollar forecast at its mid-year currency review, and is now looking for the GBP/USD exchange rate to end 2022 at 1.17, down from the previous forecast of 1.22. The EUR/USD is expected to end the year at 0.96, down from the previous forecast of 1.0.

USD/JPY Economic Analysis

The USD/JPY currency pair is traded primarily influenced by the results of US economic data. On Friday, the US economy recorded a positive number of US net jobs at 528 thousand for the month of July, which is more than double the target of 250 thousand. The US economy also recorded a noticeably low unemployment rate of 3.5%, down from 3.6% in June, and ahead of estimates of 3.6%. Average hourly wage growth for July rose 5.2% year-on-year, while also posting a sequential growth of 0.5%. In comparison, the market expected growth rates of 4.9% and 0.3%, respectively. Earlier in the week, initial and continuing jobless claims missed estimates.

From Japan, the preliminary headline economic index for June fell short of expectations at 101.2 with a reading of 100.6. On the other hand, Japan’s total household spending for June grew 3.5% (y/y), ahead of the median estimate of 1.5%. Employment cash earnings for the period exceeded 2.1%, up 2.2% year-over-year.

USDJPY Technical Analysis:

In the near term and according to the performance on the hourly chart, it appears that the USD/JPY is trading within an ascending channel formation. This indicates a significant short-term bullish momentum in market sentiment. Therefore, the bears will target short-term profits at around 134.36 or lower at 133.76. On the other hand, the bulls will look to extend the current rally towards 135.57 or higher to 136.20.

In the long term and according to the performance on the daily chart, it appears that the USD/JPY is trading within the formation of a sharp descending channel. This indicates a strong long-term bearish momentum in the market sentiment. Therefore, the bears will look to extend the current path of decline towards 133.05 or lower to 130.67. On the other hand, the bulls will target long-term profits at around 137.24 or higher at 139.38.

The Gold market has to decide what it wants to do over the longer term, and Friday might be the day that we figure it out.

• Gold markets have rallied rather significantly during the day, as we have gone back and forth during the trading session before shooting straight up in the air.
• That the market is likely to continue being driven by the bond markets, and whatever is happening with the yield in the United States.
• As yields fall, it makes gold much more attractive.

As we have rallied rather significantly from that point, the market is likely to continue to see the $1800 level as important, as it is not only a large, round, psychologically significant figure, but it is also an area that has seen quite a bit of action in the past. The 50 Day EMA is in this area as well, so that makes quite a bit of sense that we would see a little bit of dynamic resistance here as well. Ultimately, this is a market that I think given enough time will have to decide what it wants to do over the longer term, and Friday might be the day that we figure it out.

While it is more likely than not that we will see a volatile session, the real question is going to be whether or not the Federal Reserve will have to remain extraordinarily tight with their monetary policy, and if we get a very strong jobs number, it’s possible that we could see the interest rates rise again in the United States, as it will almost certainly mean that the Federal Reserve will have to step on the gas when it comes to tightening. On the other hand, if we were to see a less strong job number, then the idea might be that the economy is slowing down and the Federal Reserve will have to abandon plans to tighten as quickly as they say they will.

It really doesn’t matter because the market will do whatever it wants to do. Looking at this general vicinity, I think it’s likely that we continue to see a lot of noise in the $1800 level, and therefore it will come down to where we close on Friday at the end of the day. This not only tells you what the reaction would be to the announcement but whether or not people are comfortable holding gold through the weekend.

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As far as taking off to the upside, we would need to see the US dollar lose strength, yields in America drop drastically, and this market break above the $1815 level in the futures market, or the $1805 level in the spot market.

• Gold markets went back and forth Wednesday as we continue to levitate just below a major supply area.
• Because of this, the market is likely to continue struggling, and the fact that the Friday session is the Non-Farm Payroll announcement probably throws even more noise and nonsense into the market.
• Given enough time, I think this is a market that will have to make a major decision rather soon.

Keep an Eye On the 10-Year Yield

One of the major drivers of this market is the bond market, and what yields are doing. The 10 year yield did spike over the last couple of days, but it appears as if it is trying to fall back down. If that is in fact the case, that will be bullish for gold, but we have to worry about the $1800 level above as a major barrier. The $1800 level has historically been supported, so “market memory” could come into the picture, especially as the 50-day EMA is slicing through it. With that being the case, I think it’s worth noting that the candlestick for the previous session was a shooting star, and although we have recovered a little bit during the trading session after initially falling on Wednesday, it’s hardly a confidence-inspiring candlestick.

If we break down below the $1750 level, then it’s very likely that we will test the $1725 level next. After that, then we would be looking at the $1700 level. Notice that we did bounce from the $1680 level recently, which is an area on longer-term charts that has been important more than once. Because of this, I think what we are getting ready to see is a potential breakdown if that were to be violated. Granted, it will take quite some time to get there, and of course we have the jobs number between now and then to get things moving, but you should probably keep this in the back of your mind due to the fact that we have seen so much in the way of noisy behavior recently.

As far as taking off to the upside, we would need to see the US dollar lose strength, yields in America drop drastically, and this market break above the $1815 level in the futures market, or the $1805 level in the spot market.

 

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People have given up on gold and it’s likely that we will continue to see plenty of downward pressure on any attempt to recover.

Right now, the only thing that seems to be working is the US dollar, which is the opposite side of this trade. You short gold, you buy US dollars. In this scenario, I think that the $1800 level above is significant resistance, as it was previous support. The uptrend line also sits just above there, and then of course we have the 50-day EMA breaking below the 200-day EMA, forming the so-called “death cross.” All of this leads to a very bearish attitude in this market, so I hope we get a rally at this point because I am more than willing to start shorting it.

What Do the Candlesticks Show?

A couple of candlesticks that have made up the last 48 hours show just how negative this market has gotten, and these types of moves very rarely happen in a vacuum. This is not to say that we cannot rally, just that the rallies will eventually end up being selling opportunities at the first signs of trouble. In fact, I do not have a situation where I’m willing to buy this market, as we are so bearish. In order to make a shift in attitude, we would need to see at least a $100 turnaround, something that would take a lot of effort.

The market will continue to draw from here, perhaps reaching the $1700 level. After that, we could see gold really fall apart. I would anticipate a lot of volatility, but it’s obvious that people have given up on gold and it’s likely that we will continue to see plenty of downward pressure on any attempt to recover. As long as the US dollar continues to be strong, there’s no real hope for gold taking off.

Japanese officials, whether from the government or the Central Bank of Japan, still abandoned commenting on the Japanese yen’s collapse to its lowest level in 24 years. It brought the USD/JPY currency pair strong and continuous upward momentum. The currency pair’s gains brought it to the resistance level 136.70, the highest in 24 years, and stable around it at the time of writing the analysis. This is at a time when the US dollar pairs are awaiting the testimony of US Federal Reserve Governor Jerome Powell today and tomorrow.

Forex traders have been wondering recently: Where will the collapse of the Japanese yen continue?

In response, according to Nouriel Roubini, an additional 10% decline in the yen rate would be enough to trigger a change in BOJ policy. CEO Roubini Macro Associates told Bloomberg Television at the Qatar Economic Forum on Tuesday that the yen will continue to fall thanks to the discrepancy in the political stance between the dovish Bank of Japan and the hawkish Federal Reserve. He said that this would lead to an inflation problem for the Bank of Japan and would lead the BoJ to abandon the zero rate policy and yield curve control program.

Roubini is known for his insight regarding the 2008 financial crisis.

Roubini added: “If the dollar-yen rate crosses the 140 mark, the Bank of Japan will have to change its policy and the first change in policy will be to control the yield curve.” “So I think another 10% drop in the Japanese yen would mean a change in policy.”

The Japanese yen has fallen about 15% this year.

Stuck between the Bank of Japan keeping interest rates on the ground to boost the domestic economy and the US Federal Reserve aggressively to rein in high inflation, the yen fell to a 24-year low against the dollar. Speculators have upped their bets on the possibility that the Bank of Japan will eventually have to change course for its ultra-easy monetary policy, something that doubled down on its meeting last week.

Roubini added that while some in the market were speculating about official intervention to stem the currency’s decline, exacerbating price hikes for consumers and businesses, such an action would be a waste without changing central bank policy. “If you have intervention in the forex market without a change in monetary policy by the Bank of Japan, the intervention will not be enough to stop the yen’s decline,” he added.

USD/JPY Technical Outlook:

The general trend of the USD/JPY currency pair is still bullish. As I mentioned before, forex investors do not care about the arrival of technical indicators towards overbought levels after the recent gains. The continuation of the above-mentioned factors ensures that the bulls continue to control the performance. The closest targets to the current trend are the resistance levels 137.65 and 138.80, then the psychological resistance 140.00, respectively. On the other hand, according to the performance on the daily chart below, the first breakout of the trend will be the breach of the 130.00 psychological support. The reaction from Jerome Powell’s testimony today will have the strongest impact on the performance of the currency pair.

Traders seem to believe that there are going to be multiple interest rate hikes, and as long as that’s the case it does weigh upon gold in general.

Gold markets initially tried to go higher on Tuesday but fell hard after the initial move during the day. Ultimately, we have broken through the $1840 level, which is short-term support, but having said that it does not register as far as a major level. Ultimately, it’s more likely than not the $1800 level is where the buyers will make some type of stand.

If the market was to go below the $1800 level, that could be a very negative sign for the market, perhaps sending gold down to the $1760 level. On the other hand, the market is likely to continue to see a lot of volatility and choppy behavior. That being said, I think it is going to be difficult to hang on to a position in gold unless you are a longer-term holder. I think gold will eventually have its day, especially with the way that everything has been behaving as of late. Ultimately, as long as the $1800 level holds, it’s likely that we go much higher, perhaps opening up the possibility of the $1880 level being tested again. That was a major short-term resistance level and breaking above there really opens up the doors.

The way the market is behaving on Tuesday does suggest we have a long way to go before we have a bigger move, and think a lot of repositioning is about to happen. With that in mind, gold will continue to be something that you probably need to trade in more of a range-bound attitude. Because of this, you will need to pay close attention to the way you position size because the volatility is going to continue to make this market very difficult. You should also pay attention to the bond market because the interest rates will continue to have a negative correlation to the gold market from what I can tell. After all, we are in a very strange environment, as central banks have to worry about inflation, something that they have not had to worry about for decades.

Traders seem to believe that there are going to be multiple interest rate hikes, and as long as that’s the case it does weigh upon gold in general. As long as we continue to see a lot of problems, the markets will have no idea what to do with themselves.

Bearish View

• Sell EUR/USD and set a take-profit at 1.0353.
• Add a stop-loss at 1.04600.
• Timeline: 1 day.

Bullish View

• Set a buy-stop at 1.0446 and a take-profit at 1.0500.
• Add a stop-loss at 1.0380.

The EUR/USD price is hovering near its lowest level since May 16th as investors focused on the upcoming Fed decision and the hawkish ECB. It is trading at 1.0423, which is slightly above this month’s low of 1.040.

FOMC Decision Ahead

The EUR/USD pair maintained its bearish momentum as the US bond sell-off continued. The yield of the 10-year Treasury bonds rose to 3.45% while the 2-year rose to 3.41%. This is a sign that investors are now pricing in a more aggressive Federal Reserve.

The bond sell-off coincided with another decline in American equities. The Dow Jones erased another 150 points on Tuesday, a day after it dropped by over 800 points. The S&P 500 index remains in a deep bear territory, meaning that it has fallen by 20% from its YTD high.

Based on the Fed’s estimates, most analysts now believe that the bank will hike rates by 0.50% and commit to its quantitative tightening policy. But economists at companies like Barclays and Goldman Sachs now believe that a 0.75% hike is possible.

Before the FOMC, the EUR/USD will react mildly to the upcoming US retail sales data. Analysts believe that sales remained under pressure as inflation remained at elevated levels. This is an important figure since consumer spending is the biggest part of the American economy.

The EUR/USD is also under pressure after the relatively strong European inflation data. On Tuesday, data from Sweden and Germany showed that inflation remained at elevated levels in May. Later today, France is also expected to publish high inflation data.

These numbers reinforce the case that the ECB will also start hiking rates in its July meeting. Some analysts even expect it to move before the official meeting.

EUR/USD Forecast

The EUR/USD pair has been in a strong bearish trend in the past few weeks. The sell-off continued even after the hawkish interest rate decision by the ECB. It also accelerated after the pair dropped below the important support at 1.0630, which was the lowest level since June 1.

The pair has also dropped below the 25-day and 50-day moving averages while the RSI has continued falling. Therefore, the pair will likely continue falling as bears target the key support at 1.0353, which is the lower side of the inverted cup and handle pattern.

The pair will likely remain in this range today.

Bearish View

• Sell the BTC/USD pair and set a take-profit at 28,500.
• Add a stop-loss at 31,500.
• Timeline: 2 days.

Bullish View

• Buy the BTC/USD pair and set a take-profit at 32,000.
• Add a stop-loss at 28,500.

The BTC/USD pair continued consolidating as the market reflected on the new cryptocurrency bill in the US and the upcoming consumer inflation data. The pair is trading at 30,100, which is slightly below this week’s high of 31,792.

Consolidation Continues

Bitcoin continued its consolidation phase as investors reacted to the latest cryptocurrency bill in Washington.

The bipartisan bill was drafted by Cynthia Lummis, a Republican from Wyoming, and by Kirsten Gillibrand of New York.

If passed, the bill will grant regulation of cryptocurrencies like Bitcoin and Ether to the Commodity Futures Trading Commission. It will also make a clear distinction between digital assets that are commodities or securities. As such, Bitcoin will fall into a commodity while the SEC will focus on digital assets that are not securities.

Most people in the industry believe that the bill is a good one since it simplifies the regulatory situation of the industry. Most importantly, it will remove the conflict that exists between the SEC and the CFTC in determining who will regulate what.

The draft was unveiled as the SEC continues to fight Ripple and its executives in court. And this week, it was revealed that the agency was investigating Binance, the biggest exchange in the world.

The next key catalyst for the BTC/USD pair will be the upcoming Consensus event in Texas. The event, which is hosted by Coindesk, is the most important one in the industry. It will feature most of the most important people in the sector, including regulators and developers.

The pair will also react to the upcoming American consumer inflation data from the United States. Analysts expect the data to show that the country’s inflation remained at a 40-year high.

Meanwhile, on-chain data shows that inflows in Bitcoin have been relatively limited in the past few weeks.

BTC/USD Forecast

The BTC/USD pair continued moving sideways. It is trading at 30,250, which is lower than this week’s high of 31,435. It is also along the 25-period and 50-period moving averages while the Average True Range (ATR) tilted upwards. Further, the Relative Strength Index (RSI) and the MACD have moved to the neutral level.

Therefore, the pair will likely remain in this range today. The key support and resistance levels to watch will be at 29,200 and 31,500.

If we are going to trade this market between now and the announcement on Friday, it’s very likely you will have to trade it from a short-term perspective, and in an environment that simply has nowhere to be.

Gold markets went back and forth on Wednesday as we are essentially killing time this week. The CPI numbers come out on Friday, and that is more than likely going to be the next catalyst for any significant amount of momentum. After all, there are a lot of questions about inflation and what the Federal Reserve will do next, although it certainly will be hawkish.

It has been running off its balance sheet, so that drives up the value of the US dollar, thereby putting a little bit of pressure and gold. At the same time, interest rates have peaked it seems, and if we pull back in the 10-year yield, that might attract people into the gold market again. Regardless, gold looks stuck as we are hanging around the 200-day EMA. The $1875 level has been resistant more than once, so it does make a certain amount of sense that we are looking at that as the top of a rectangle. The $1830 level offers support, and I think those are your boundaries.

If we are going to trade this market between now and the announcement on Friday, it’s very likely you will have to trade it from a short-term perspective, and in an environment that simply has nowhere to be. You could trade the outer edges, assuming that we even get there between now and the announcement. If we do break above or below this box, then you have the ability to place a more significant trade. Breaking down below the bottom of the box opens up the possibility of a move down to the $1800 level, an area where we have seen a lot of interest previously. On the other hand, if we were to break above the $1875 level, it opens up the possibility of targeting $1900.

If we were to break above the $1900 level, then it’s possible that we could go as high as $2000. That will take some time to accomplish though, so I would not hold my breath. The only way I see that happening is if the CPI number misses horribly. Furthermore, we would probably need to see someone from the Federal Reserve suggest that they are second-guessing their tightening policy. That’s almost impossible at this point in time.