It’s difficult to imagine what’s going to change the market, and that’s not going to be anytime soon.

• The AUD/USD initially tried to rally during the session on Friday but gave back gains as the market has been turned around.
• The speech at Jackson Hole by Jerome Powell was much more hawkish than people anticipated, so at this point, it looks like the US dollar is being flocked to yet again.
• As I record this, we are breaking back down below the 0.69 level, and therefore it’s possible that we could go much lower.

Breaking down below the recent pullback opens up the possibility of a move down to the 0.68 level, possibly even the 0.67 level. This is a market that has been negative for quite some time, and it is starting to look a lot like the stock markets, so it seems as if we are going to follow stock markets as far as risk appetite is concerned. Rallies at this point still look to be very tentative, and at the first signs of exhaustion, I am more than willing to start shorting.

Downward Pressure Ahead

The 50-Day EMA sits just above and is offering a significant amount of technical resistance, sitting just below the 0.70 level. The 0.70 level is an area that obviously is a large, round, psychologically significant figure, and an area that you will be paying close attention to. The size of the candlestick also tells me that we more likely than not will continue to have downward pressure, so I think it’s essentially a situation where we have already made up our minds as to which direction we are going.

It’s not unless something changes quite drastically with the Federal Reserve that I see this market changing, and it’s hard to imagine that they would immediately after talking about how hawkish they wanted to be. In fact, it’s not even that they were leaving much doubt, it’s just that traders for whatever reason chose not to pay attention to the Federal Reserve. I think they finally got the picture during the Friday session, so we should resume US dollar strength going forward. With the type of move that we have seen, do not be surprised to see a little bit of a short-term relief rally, followed by another hard pounding to the downside. It’s difficult to imagine what’s going to change the market, and that’s not going to be anytime soon.

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Gold markets tried to go higher at the open on Monday but have found so many sellers out there that they have collapsed and slammed into the bottom of the overall range that we have been in for some time. 

This is because the 10-year yield in the United States broke above the 3.25%, and then went all the way to the 3.35% level. As long as yields continue to rally the way they have, gold will not be attractive, and therefore it’s a situation where you are going to see almost anything priced in US dollars face downward pressure.

The size of the candlestick is huge, and that suggests that we are going to continue to see a lot of negative pressure, and as long as that’s going to be the case, I just don’t see that buying gold will be doable. In fact, it’s not until we break above the $1880 level that I am going to consider trading gold; however, I must admit that I am more of a swing trader and less of a range-bound trader. If you are a range-bound trader, it might be worth trying to bet on a bounce, but you would have to keep a very close on the 10-year note.

If we break down from here, then it’s likely that we go down to the $1800 level, which is a large, round, psychologically significant figure, and an area that should be a massive support. However, if we turn around and break to the upside, it opens up the possibility of $1900, maybe $2000 after that. Ultimately, this is a market that is probably stuck, but it’s going to take all of its cues from the Federal Reserve.

At this point, the Federal Reserve is going to break something, but I don’t think it’s necessarily going to be the gold market. Yes, gold could fall apart from here, but unlike most other assets, gold has 5000 years of backing and as far as being worth something. Granted, if you are levered, that’s not going to do any good, but at this point, I think we got a scenario where the market should give you a nice buying opportunity eventually, but it might be at a lower level based on what I’m seeing in the greenback and of course the bond markets.