Yesterday’s broad dollar strength played out to drag on gold, but the recent mini range that has formed above the old $1217 pivot and below $1233 continues to play out. Within this range the market moves are simply noise, with the last six closes all being within $5 of each other.
As the support of the breakout highs between $1208/$1217 remain intact then the underlying demand should continue to act as a near term source of support. Once more, this morning, to re-iterate the lack of direction, the market has rebounded again.
Momentum indicators are positively configured but look a little tired and given yesterday’s negative candle, a slip back into $1208/$1217 should not necessarily be ruled out near term. It would though be the reaction around those levels that would be key to sustaining the medium term outlook of improvement now.
Market Overview
There is very little to be positive about across major financial markets right now. The trade tensions show little sign of easing, whilst geo-political risk is elevated with the international condemnation of Saudi Arabia and President Trump ready to pull the US out of a nuclear arms treaty with Russia.
Political risk in Europe is also a key factor with the Italian government standing firm over its populist spend increasing budget, whilst UK Prime Minister continues with (what I see as) the hardest job in politics, trying to deliver Brexit amidst pressure from both the EU and domestic fronts. The weakness and underperformance of both the euro and sterling subsequently continue.
There is an appetite for safe haven asset plays right now and the US dollar seems to be the most popular. It seems as though there is a fine balancing act right now within this as the dollar is gaining against the (uber-safe) yen. This would suggest that whilst markets are risk averse, they are not in Armageddon territory. Treasury yields seem to be uncertain from a day to day basis, whilst gold remains stuck in a range, and reflecting this knife edge attitude to safety.
However, today markets have begun to lean precariously over the edge again with the US 10 year yield dropping back, gold higher and the yen outperforming. As yet there are not decisive moves, but certainly reflect the risk averse feel to sentiment. Equity markets (a higher risk asset class) however remain under selling pressure as any intraday gains continue to be sold into. The significant fear driven sell-off of two weeks ago has settled down, but has now been replaced with a glass half empty mentality. With very little to be positive about in global financial markets right now, this does not bode well.
Wall Street fell into the close, with futures the S&P 500 -0.4% at 2746, whilst are showing even greater downside early today (currently around -0.9%). Asian markets have unwound much of their previous gains (especially in China) as global risk factors have weighed on the Nikkei (-2.6%) and the Shanghai Composite (-1.9%).
In Europe, there is a continued negative sentiment, with the DAX especially at risk of another significant breach of support. In forex, today’s negative sentiment is being reflected in a risk averse position across the majors, with the dollar broadly stronger, but the yen being the significant outperformer. In commodities, gold is higher, whilst silver is weaker (all risk off), whilst oil is back lower once more.
