• Gold looks south, with the focus on the key 100-DMA support.
  • $1932/42 zone is the level to beat for the bulls.
  • Focus on US NFP release for the next direction in gold.

Following the 4.5% weekly loss, Gold (XAU/USD) has locked itself in a $100 range stepping into the critical US Non-Farm Payrolls week, as depicted by the daily chart.

The metal fell to the lowest in two months last week after it faced rejection at the two-month-long falling trendline resistance on several occasions. Adding credence to the breakdown, the 21-day Simple Moving Average (DMA) pierced the 50-DMA from above.

The bright metal delivered a weekly closing at $1862, although remained well above the 100-day Simple Moving Average (DMA) at $1845. Note that the price bounced-off the latter for the second straight day on Friday, allowing for a tepid rebound in the coming week.

However, the bulls need to recapture the immediate hurdle around $1875 for the recovery to gain momentum.

Further north, the confluence zone of the 21 and 50-DMA around $1932/42 is the level to beat for the bulls

On the flip side, a daily closing below the 100-DMA could trigger a sharp sell-off towards the next support at the horizontal trendline at $1791.

The 14-day Relative Strength Index (RSI) has turned flat while holding just above the oversold territory, suggesting that there is further scope to the downside.

Although, Friday’s US NFP report will be a key event risk to determine the next direction in gold prices.

Gold: Daily chart

fxsoriginal

Gold Additional levels

 

The Bank of England’s (BOE) study of the impact of negative interest rates to support the economy from the coronavirus pandemic-induced downturn revealed ‘encouraging’ evidence, said policymaker Silvana Tenreyro in a Sunday Telegraph interview published late Saturday.

Key quotes

“The evidence has been encouraging,” adding that cuts in interest rates below zero had been almost fully reflected in reductions in interest rates charged to borrowers.

“Banks adapted well – their profitability increased with negative rates largely because impairments and loss provisions have decreased with the boost to activity and the increase in asset prices.”

“Flare-ups, like we’re seeing, may potentially lead to more localized lockdowns and will keep interrupting that V (-shaped recovery). Another factor interrupting the V is a very weak global outlook, with high uncertainties, particularly with a second wave already striking many countries.”

GBP/USD closes the week below 1.2750

GBP/USD dropped 1.35% in the past week to settle at 1.2747, courtesy of the coronavirus resurgence-led new restrictions and the persistent safe-haven demand for the US dollar. Although the UK Finance Minister Rishi Sunak’s furlough scheme did offer a temporary reprieve to the GBP bulls.

Heading into the weekly opening in Asia on Monday, nothing seems to have changed fundamentally for the cable, as the optimism over a potential Brexit deal remains overshadowed by the virus concerns and prospects of negative interests.

According to the latest data published by the French Health Ministry on Saturday, the number of new coronavirus cases in the country spiked by a whopping 14,412, bringing up the tally to 527,446.

Note that a daily record of 16,096 new infections was set earlier this week. France reported 39 new deaths as the total fatalities rose to 31,700.

Meanwhile, the UK recorded 6,042 new coronavirus cases and 34 deaths a day before, despite the latest activity restrictions.

The official data showed the rolling seven-day average of daily cases has surged by 54% in a week. The death toll now stands at 41,971.

Infectious disease modeling expert Professor Graham Medley, who sits on the Scientific Advisory Group for Emergencies (SAGE), said: ‘At a level of 10,000 (cases) we are seeing now, means that in three or four weeks we are going to see 100 deaths a day.”

Across the Atlantic, the US Centers for Disease Control and Prevention (CDC) on Saturday reported 7,009,216 confirmed cases, an increase of 50,584 from its previous count while the death count rose by 851 to 203,180.

Bringing in some optimism amid the coronavirus resurgence globally, the US pharmaceutical giant Johnson and Johnson Inc COVID-19 vaccine trial is reported to have shown a strong immune response to the coronavirus with a single dose in the early trial stages. 

The company’s potential vaccine is the fourth vaccine in the final phase of trials

Market implications

The vaccine optimism could likely be negated by the continued spike in cases across the Euro area and the UK.

The US dollar, therefore, could continue to draw haven bids starting out the Non-Farm Payrolls (NFP) week on Monday.

The US dollar index settled the week closed to nine-week highs of 94.74.

Gold (XAU/USD) shed about 4.5% in the past week, delivering a weekly closing below the August month low of $1863. The yellow metal booked the first weekly loss in three, with the risks skewed to the downside in the US Non-Farm Payrolls (NFP) week ahead.  

The persistent haven demand for the US dollar, in the wake of fiscal stimulus wrangling and coronavirus resurgence in key economies, continues to exert the downward pressure on the metal. Further, central banks’ skepticism on providing additional monetary stimulus also undermines the sentiment around gold.

How is gold positioned technically, with all eyes on the critical US NFP release?  

Gold: Key resistances and supports

Gold failed to hold onto the critical $1862 barrier on a daily closing basis. Therefore, the Technical Confluences Indicator suggests that the path of least resistance appears to the downside amid a lack of healthy support levels.

The bears are likely to meet minor hurdles before testing a significant support level at $1849, which is the previous week low.

The next downside targets are seen at $1846 and $1840, the SMA100 one-day and pivot point one-day S2 respectively.

To the upside, a sustained move above the $1862/64 barrier is critical to prompt a minor recovery towards a major cap at $1874, where the pivot point one-day R1 and Fibonacci 23.6% one-week coincide.

The bulls may, however, confront a soft cap at $1866 (Fibonacci 61.8% one-day) before it heads to the latter.

Here is how it looks on the tool

 

About Confluence Detector

The Confluence Detector finds exciting opportunities using Technical Confluences. The TC is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.

Learn more about Technical Confluence

Late Friday, the US-based Fitch Ratings affirmed the UK’s sovereign credit rating at ‘AA-‘ with maintaining a negative Outlook.

Key takeaways

“The Negative Outlook reflects the impact the coronavirus pandemic is having on the UK economy and the resulting material deterioration in the public finances, with Fitch forecasting the fiscal deficit to materially widen this year and government debt set to increase to well over 120% of GDP over the next few years. “

“The COVID-19 pandemic and the containment measures imposed to limit its spread have hit UK economic activity hard.” 

“Changes in UK-EU trading arrangements are likely to curtail the pace of recovery as the Brexit transition period ends on 1 January 2021.” 

Related reads

  • GBP/USD Weekly Forecast: Slipping or plunging, the direction is down
  • GBP has been biggest decliner

Late Friday, the US-based Fitch Ratings affirmed the UK’s sovereign credit rating at ‘AA-‘ with maintaining a negative Outlook.

Key takeaways

“The Negative Outlook reflects the impact the coronavirus pandemic is having on the UK economy and the resulting material deterioration in the public finances, with Fitch forecasting the fiscal deficit to materially widen this year and government debt set to increase to well over 120% of GDP over the next few years. “

“The COVID-19 pandemic and the containment measures imposed to limit its spread have hit UK economic activity hard.” 

“Changes in UK-EU trading arrangements are likely to curtail the pace of recovery as the Brexit transition period ends on 1 January 2021.” 

Related reads

  • GBP/USD Weekly Forecast: Slipping or plunging, the direction is down
  • GBP has been biggest decliner
  • USD/JPY trades 0.18% higher on Friday and 1% higher on the week.
  • There was a strong rejection of 104.00 to the downside.

USD/JPY daily chart

USD/JPY does not seem to like trading below 104.00 as there seems to be a quick recovery as soon as the level is pierced. The key level on the chart is the area marked in orange at 106.00. This level seems like a magnet for price and if the bulls manage to break the level it could be significant in the future. 

There are also two trendlines to look out for on the chart. The first is marked in blue and the market is currently testing the zone. The black trendline is the stronger one as it has had more touches. 

The indicators are back to mid-range as the price has pulled back. The MACD signal lines are still bearish, however, as they remain under the zero line. 

Next week the latest US jobs data could inspire some more volatility than usual. There is also some election shenanigans to look forward to as the leaders of the democratic and republican parties go face to face. 

 

USD/JPY Technicals

Additional levels