Table of Contents
What happened last week
During the previous week, there was a significant decline in the value of gold, a precious metal that is often perceived as a safe-haven choice during times of economic uncertainty. Gold prices experienced significant fluctuations last week. Despite holding up against a hawkish Federal Reserve outlook, the precious metal suffered heavy losses due to the strong US Dollar (USD) and rising yields of US Treasury bonds. The XAU/USD pair ended the week down by more than 2%, which is a notable drop for such a short period.
This week, the pair’s future performance may be affected by political developments in the US, ISM PMI surveys, and the release of the September jobs report. These factors will undoubtedly have an impact on the market and investors will be keeping a close eye on how they unfold.
At the beginning of the week, risk aversion in the market allowed the USD to maintain its strength, which hindered XAU/USD’s momentum. Additionally, Evergrande’s inability to issue new debt due to an ongoing investigation into its subsidiary, Hengda Real Estate Group Co Ltd, caused a global equity sell-off. This news sent shockwaves throughout the market and caused investors to panic, resulting in a negative impact on gold prices.
Consumer sentiment in the US also declined in August, further unsettling the market. The lack of progress in US budget negotiations also reignited concerns about a potential government shutdown, which would have adverse effects on the US credit rating. These issues caused many investors to be cautious and hesitant, resulting in a lack of confidence in the market.
Midweek, the Senate presented a stopgap funding bill to avoid a shutdown, but this was met with resistance from Republican Speaker Kevin McCarthy. The impasse caused the 10-year US Treasury bond yield to soar to its highest level since 2007, causing Gold prices to fall further. Once XAU/USD breached the $1,900 level, technical selling pressure intensified, leading to the pair plummeting to its lowest point since March, falling below $1,870. This news was a significant blow to the market and caused many investors to lose faith in gold as a safe haven asset.
What to expect this week
Over the weekend, House Republicans and Democrats achieved an unexpected agreement to fund the government, averting the anticipated government shutdown. This move spared millions of American families from economic hardship, which was a relief. President Joe Biden promptly signed a temporary funding bill, ensuring the continuous operation of government agencies. Notably, the bill did not include aid to Ukraine, which had been a White House priority but faced opposition from a growing number of GOP lawmakers. Instead, the bill allocated an additional $16 billion for federal disaster assistance, meeting Biden’s full request. It is important to note that this funding will keep the government operational until November 17, providing some respite in these uncertain times.
Next week, forex traders will focus on key US economic data releases that will impact the currency markets. On Monday, the ISM Manufacturing Purchasing Managers’ Index (PMI) is the main event, with analysts predicting a slight increase to 47.8 in September from 47.6 in the previous month. If this figure crosses the 50 threshold, it would indicate an expansion in the manufacturing sector’s business activity for the first time since October, which could give the US Dollar (USD) a boost. However, the trajectory of budget negotiations will also affect USD sentiment, so the bond markets will be closely monitored.
There will also be increased attention on Asian equity indices due to news of Chinese authorities launching an investigation into Hui Ka Yan, the director and executive chairman of Evergrande, on suspicions of criminal activities.
On Wednesday, the September ISM Services PMI is expected to be released with a reading of 54. If the reading approaches or falls below 50, it could put downward pressure on the USD. However, the Prices Paid Index within the survey, which represents the inflation component, will also be important. If this index remains close to 60, any negative impact on the USD from a disappointing headline Services PMI might be temporary.
Finally, on Friday, the US Bureau of Labor Statistics will unveil the September jobs report. Nonfarm Payrolls (NFP) are projected to increase by 150,000, following the 187,000 gain recorded in August. If the NFP figure is at or above 200,000, it could prompt investors to reconsider the likelihood of an additional rate hike by the Federal Reserve (Fed), thereby strengthening the USD as the week ends. However, if job growth falls short of expectations, it may fuel dovish Fed expectations and potentially lift the XAU/USD pair as it dominates market sentiment. Forex traders will closely monitor these pivotal economic indicators to navigate the week’s currency market dynamics.
EURUSD Forecast
Last week the EURUSD forecast delivered according to the scenario presented. EURUSD rejected the resistance level of 1.06282 and attempted to break the 1.04926 support level twice on Wednesday and Thursday. On Friday, investors failed to push the price above the key resistance level of 1.06282.
According to the Fibonacci Retracement plotted on the weekly timeframe from 0.95387 to 1.12961, we can expect the price of EURUSD to drop further towards the 1.04174 level which signifies the 50% level retracement. The EURUSD is attempting to enter the channel again, a rejection of this move will see the EURUSD price drops further toward the 1.04082 level and 1.02149 level. In another scenario, if the price is able to get back inside the channel, buyers are likely going to attempt a break above the 1.06245 level; and if successful a rejection is likely at the 1.06700 level.
Overall the forecast for EURUSD is bearish
Key Support Levels
- 1.04174
- 1.04082
- 1.02149
Key Resistance Levels
- 1.06248
- 1.06700
GOLD (XAUUSD) Forecast
Last week, the gold market experienced a significant drop in price, falling from 1925 to 1946, amounting to a 4.12% sell-off. The main concern now is whether this was the lowest point or if there is a possibility of further decline.
Upon analyzing the weekly timeframe, a triple top rejection was observed, and a major resistance level was identified between 1696 and downward. Currently, we are in a weekly range, but I do not anticipate the price of gold to drop to the 1696 area due to various factors such as post-COVID interest rate increase and economic fallout increase in the U.S. Treasury.
The first area of support can be found in 1805, where resistance turned support. This area has several block orders, likely prompting buyers to step in and push gold prices higher. Additionally, it falls around the Fibonacci level 0.618 (1795), so a pushback around the 1805-1795 area is expected. It is essential to observe a solid bullish candle closing, volume, and momentum of price before opening a buy order.
If the price of gold breaks below the 1805-1795 area, we may expect it to return to the 1696 area.
My personal strategy for a buy entry is to sell every rally
Key Support Levels
- 1805 – 1795
- 1693
- 1616
Key Resistance Levels
- 1880
- 1906
CADCHF Forecast
This analysis was dropped in XOXO TraderFX free telegram group during the week. It played out according to planned.
It appears that the CADCHF has been unable to break through the resistance level marked as 0.68279. As a result, a double top has been created. However, I am optimistic that the buyers have already entered the market for this pair. My plan is to purchase at a lower price point, and here is my reasoning.
Upon examining the 4-hour chart, I have noticed a series of both highs and lows. Therefore, my target zones for buying are the 0.66660 demand zone and the 0.66166 breakout zone/broken resistance turned support.
Key areas
- 0.66660
- 0.66166
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