The market is more likely than not going to continue to drift lower, perhaps trying to test the lows near the $1680 level, but I would be surprised to see it go any lower than that anytime soon.

• Gold markets got hammered during the trading session on Friday after Jerome Powell gave a very hawkish speech at Jackson Hole. At this point, the US dollar looks like it’s reasserting its dominance, and that of course he’s going to have a major influence on where we go next.
• This is a market that I think given enough time may retest the $1720 level, possibly even lower than that.
• The market has been very noisy and had tried to rally but now it appears that people are finally getting it through their heads that the Federal Reserve is going to have to stay rather tight going forward.

This should bring interest rates higher, and it should continue to drive the US dollar higher. The US dollar being stronger obviously works against the value of commodities priced in that same US dollar, but it is worth noting that the market did not necessarily meltdown during the day, it just lost 1.2%, well within the tolerance of normalcy.

Market Likely to Drift Lower

The market is more likely than not going to continue to drift lower, perhaps trying to test the lows near the $1680 level, but I would be surprised to see it go any lower than that anytime soon. If it does, that opens up a massive amount of selling pressure that could send gold down to the $1500 level.

If the market rallies from here, the $1760 level will be the first carrier, followed by the 50 Day EMA and then the $1800 level. The $1800 level is an area that previously had been supported, and of course, we have seen a lot of resistance just recently. Because of this, the market will continue to be one that you have to watch through the prism of a downward trend, and it’s not until we clear the 200 Day EMA above that I would assume things have changed at all. The market breaking above that level then opens up the possibility of a move to the $1850 level. Breaking above that level then opens up the possibility of $1900 and more of a “buy-and-hold” type of situation. I do think the gold eventually takes off, but we are nowhere near that right now with the central bank still out there fighting inflation. Higher rates equals lower gold.

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I would love to see the Euro rally so I can sell it from a higher level. 

The EUR/USD initially tried to rally during the session on Friday, to break well above the parity level as traders got ready to hear the Jerome Powell speech coming out of Jackson Hole. It seems that traders were hoping for some signs of a dovish attitude out of the Federal Reserve, but they did not get that by the time it was said and done. Jerome Powell went out of his way to let people know that the Federal Reserve was in fact going to continue to be hawkish, essentially being “tighter for longer.”

The shape of the candlestick is an inverted hammer, and that does suggest that we have further downward pressure ahead, and it’s likely that the markets will continue to go lower. If we break down below the most recent lows, then it’s likely that the Euro would go reaching down to the 0.98 level. The 0.98 level is an area that had previously been important in the past, so it’ll be interesting to see if there is a little bit of “market memory” to be had in that area.

Wait for Shorting Opportunities

• If we were to break above the top of the inverted hammer, that would obviously be a bullish sign as it would break the backs of the sellers for the day, perhaps opening up the possibility of a little bit of a relief rally.
• That relief rally would be short-term at best, and more likely than not something that you can sell into given enough time.
• That doesn’t necessarily mean that you would get that shorting opportunity right away, because there is a little bit of room that the market could move to reach resistance.

The 50-Day EMA sits just above the 1.02 level and is sloping lower. That typically means that you are looking at a situation where there is a lot of downward pressure in an area where we had sold off previously as well.  I would love to see the Euro rally so I can sell it from a higher level. Whether or not I get that opportunity remains to be seen, but I clearly would favor picking up “cheap US dollars” if I could. Market participants continue to favor the greenback overall, and I just don’t see how that changes anytime soon.

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At this point, I either fade rallies or celebrate down, because I believe that the British pound is going to find its way down to the $1.15 level. 

The GBP/USD has rallied slightly during the trading session on Thursday, as we are hanging around the 1.18 level. It’s worth noting that level has been a bit of a magnet for price for most of the week, but it’s also worth noting that the level is below the previous low, meaning that we are still very much in a market that is overall negative. I think at this point any time we rally, there will be plenty of people willing to jump into this market and start shorting again.

The 1.20 level above should be resistance, and I would also point out that the 50-Day EMA is racing toward that area as well. In other words, on rallies, I think there will be plenty of technical reasons for traders to get short again. On the fundamental side, the Federal Reserve will have to tighten monetary policy going forward, so the market has already started to price that in. The question is how much longer will they have to go? At this point, a lot of people will be waiting to see what Jerome Powell has to say on Friday about monetary policy and whether the Federal Reserve is getting close to pivoting.

Traders Ready to Pick Up Cheap Dollars

• I think a pivot is a bit of a pipe dream by those who were bullish on risk assets, but that does not mean that the market will not read the statement as such.
• Jerome Powell causes a long history of dropping the ball in situations, so anything is possible. Therefore, I hope this market bounces because quite frankly I’ll be able to short it at higher levels.
• Picking up “cheap US dollars” has been the trade all year, and I don’t see how those changes anytime soon. This is especially true considering that the Bank of England is already stated that the United Kingdom is going into a recession. Meanwhile, here in the United States, we just simply changed the definition of the word “recession.” It’s as if the British don’t understand this can be done!

Anyway, I digress. At this point, I either fade rallies or celebrate down, because I believe that the British pound is going to find its way down to the $1.15 level. That’s not going to be quick or easy, but I think we continue to grind the way we have been over the last several months.

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All things being equal, this is a market that I think remains bullish due to the idea of the Bank of Japan continuing to do whatever it takes to keep interest rates down.

The USD/JPY has pulled back just a bit during the trading session on Thursday as we continue to wait for Jerome Powell to bloviate at Jackson Hole, Wyoming on Friday morning. He will give a statement/speech that will hopefully give people a bit more clarity as to what the Federal Reserve is going to do. If history is any indication, he will say one thing, while the market will interpret the exact opposite. This man is horrible at his job.

We are sitting at an extreme high and aren’t too awfully far from breaking out to a fresh, new high. The ¥140 level would be an area of the target, as well as an area of resistance. The range over the last several days has been rather tight, so therefore it’s obvious that we are waiting on something. If we do pull back from here, it’s likely that the market could go down to the 50-Day EMA, looking for some type of support. On the other hand, if the market rallies from here, then it’s likely that we will challenge that previously mentioned ¥140 level.

The Dollar is Expected to Strengthen

All things being equal, this is a market that I think remains bullish due to the idea of the Bank of Japan continuing to do whatever it takes to keep interest rates down. The 10-year note in Japan is being artificially suppressed at the 0.25% level. The Bank of Japan has pledged to buy “unlimited bonds”, so therefore it’s likely that we will continue to see the Japanese yen suppressed. On the other side of the trade, we have the Federal Reserve looking to tighten monetary policy, so therefore it should continue to push this market to the upside.

A lot of back and forth will be the norm, but we are still very much in an uptrend. In fact, if we stay above the ¥132 level, I don’t see anything to be concerned about. If we were to break down below that level, then it’s likely that we could drop down to the ¥128 level. The ¥128 level is the area where the 200-Day EMA is rapidly approaching, so it should offer a significant support level on any pullback. It’s not until we break the role that that I would be parish of this pair.

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I do think that a big move is coming, but I would not be surprised at all to see a lot of noisy shakeouts over the next couple of days, so you need to be very cautious.

The S&P 500 E-mini contract has done very little during the training session, as we sit just below the 200 Day EMA. The 200-Day EMA is an indicator that a lot of people pay close attention to, and therefore it does make a certain amount of sense that we are hanging around in this area. It is also worth noting that we are between the 50-Day EMA underneath, and the 200-Day EMA, suggesting that we are getting ready to squeeze.

The size of the candlestick leaves a little bit to be desired, so at this point in time, I think we are simply waiting to see some type of decision from Jerome Powell and how the market reacts to any statement that he makes. I think the market will try to find some type of reason to make his statement dovish, and clearly, Jerome Powell is not good enough for communicating to make that not happen. It’s very common for the market to read what once into a statement, take a little bit of time, and then come back into the fold again.

Noise Ahead

• I think it’s very likely that we continue to see a lot of noisy behavior, and therefore I think the volatility is probably only going to get worse.
• Clearly, Jerome Powell has made a career of doublespeak, but now that the reserve governors are not out there day trading, they may not have the same drive to support Wall Street.
• I do think that a big move is coming, but I would not be surprised at all to see a lot of noisy shakeouts over the next couple of days, so you need to be very cautious.

If we break down below the 50 Day EMA, then it’s likely that we go down to the 4000 level, which of course is a large, round, psychologically significant figure. On the other hand, if we turn around and go to the upside, it’s obvious that the 4300 level is an area where we have seen a lot of selling pressure, so I would anticipate that the area could be rather resistant to upward pressure. This is a market that I think continues to see a lot of noisy behavior, and therefore position sizing will be paramount.

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• The NASDAQ 100 has done very little during the trading session on Wednesday as we continue to sit just above the 50 Day EMA.
• This is a market that is going to be waiting on Jerome Powell and his speech on Friday.
• The Jackson Hole Symposium features several central bankers and speeches that will give us an idea of where their thoughts are.

If we were to break down below the 50 Day EMA, then it’s possible that we could unwind down to the 12,500 level. Underneath, then the market could open up a move down to the $12,000 level. On the other hand, if we turn around a break to the upside, then the 200 Day EMA is sitting at the 13,500 level. This is a market that had recently broken out, and now it is looking for an opportunity to find some type of support underneath to turn things to the upside. We are also between the 50-Day EMA and the 200-Day EMA, which typically signifies that we are about to see a squeeze.

Traders Worried About the FED

The market breaking down will more likely than not have a lot to do with the speech coming out of Jerome Powell on Friday, which if interpreted as extraordinarily hawkish, while traders worried about plenty of downward pressure on the economy. Furthermore, interest rates could continue to be a major driver of war we go next, so if interest rates rise after that statement, it will make people more interested in that asset as opposed to stocks. High-growth technology companies tend to follow the cheap money, so it needs to see cheap money and low interest rates in order to take off.

I think the only thing that you can count on Thursday is a lot of lackluster trading, and unless something is leaked, I anticipate that everybody is going to be waiting around for that Jerome Powell speech at 10 AM on Friday. Market participants are waiting to see whether or not the Federal Reserve is looking to pivot, which is a story that Wall Street has told itself. At this point, people are completely ignoring what the Federal Reserve says, so it’s not necessarily going to determine that we are breaking down the market. After all, Wall Street will find some type of narrative to help. However, if Jerome Powell is aggressive in his speech, we may actually see a selloff on Friday. Thursday is about waiting.

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