XAGUSD D1 08 26 2020 2218

It’s been a big summer for metals and, well, a number of other physical assets that have gained en masse as the US government launched a trove of measures designed to offset the inevitable business slowdown that followed the coronavirus-drive lockdowns. As most economies continue to hobble with the aim of a ‘V-shaped’ recovery, the one aspect that’s remained clear is that global governments were going to do whatever they could try to offset the economic ills of the pandemic. In many cases, this involved ushering out the printing presses again, and with that prospect of monetary dilution came the potential for gains in hard assets that could simply be diluted: Hard assets such as Gold and Silver.

Are buyers going to be able to get back in the drivers’ seat to produce a move resembling anything like July price action? Taking a step back to look at the daily chart, and a point of potential resistance shows around the 30 big figure, which seems to have had some pull when prices topped-out in early-August. Silver came within 14 cents of hitting that 30-level, and the fact that it didn’t highlights bulls’ lack of conviction at the time, and given the severity of the move a bit of hesitation might make sense.

On a shorter-term basis, a Fibonacci retracement produced by the August pullback can provide some framework moving forward. The 61.8% retracement of the pullback move is currently helping to hold resistance, and a breach above opens the door for a push up to the 76.4% marker, which is confluent with last week’s swing high, taken from around the price of 28.34. Beyond that, the prior highs come into view, with a bit of confluence around the 28.15 area on the chart before the 29.86 prior high and the 30 psychological level. 

 

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Wall Street Cash 1 20200826 13.42

Bearish RSI divergence and a Shooting Star reversal candle above the January low (28130) paint an ominous picture for the Dow Jones Industrial Average and may inspire a near-term correction lower, if price breaks back below psychological support at the 28,000 level.

However, the steeping gradients of the 21-, 50- and 200-day moving averages are indicative of swelling bullish momentum and could result in any potential pullback being met with a wave of bargain-hunters attempting to “buy the dip”.

Nevertheless, price appears poised to slide back towards confluent support at the Pitchfork parallel and June high (27638.6), before potentially resuming its primary uptrend and pushing back towards the record high set in February (29595.3).

Conversely a daily close below the psychologically pivotal 27500 level would likely invalidate bullish potential and carve a path for price to fall back to support at the July high (27187.5).

GBPUSD D1 08 24 2020 1230

The seventh round of EU/UK trade talks broke up with little agreed and with both sides sounding pessimistic that a deal can be reached before the UK leaves the EU at the end of the year. The EU said that they were disappointed with the latest round of talks while the UK said that little progress had been made. It is likely that a breakthrough will be made, even if it is just a bare-bones trade deal that can be fleshed out later, as neither will benefit from fresh trade tariffs and WTO trade terms. Talks will continue in the background before the next meeting between the two parties on September 7.

There is little on the UK docket this week to steer Sterling and GBP-USD traders should look to the US for fresh trading signals. There are a few important economic releases this week, including consumer confidence and durable goods – while Fed chair Jerome Powell will speak online at this year’s Jackson Hole Economic Symposium titled ‘Navigating the Decade Ahead: Implications for Monetary Policy’. The virtual meeting on August 27-28, will give traders a clearer picture of how the Fed, and other global central bankers, see the future of the US economy.

GBP/USD is trying to claw back a part of last Friday’s sell-off and trades either side of 1.3100. The recent short-term bullish pennant formation is under threat after a positive breakout early last week and support for the pair is starting to look under threat after a bearish engulfing candle was formed on Friday. Recent lows, all the way down to 1.3000, should stem any sharp sell-off, but the broken pennant and GBP/USD below the 20-dma casts a negative shadow over the pair for now.

Oil US Crude 20200824 19.32

 

Crude oil prices are trading modestly higher to start the week as the commodity aims to extend its advance. The price of oil has gained ground for the last three consecutive weeks and the move seems to largely mirror the tumble lower by the VIX.

There could be potential for crude oil price action to continue its climb amid falling volatility. This is considering a declining VIX Index generally indicates improving appetite for risk as expected market volatility – and demand for S&P 500 downside protection – diminishes. Likewise, as with stocks, the direction of crude oil is generally tied to risk appetite, economic activity, and prospects for global GDP growth.

However, a sharp reversal higher by the VIX Index would likely be associated with a breakdown in broader sentiment and economic conditions. In turn, this could correspond with bearish headwinds for oil prices. More information on the relationship between crude oil and volatility can be found in our quarterly crude oil forecast above.

Crude oil prices nevertheless remain buoyed by a bullish trend extended through a series of higher lows since mid-June. Technical resistance facing crude oil price action stands out around the $43.00-price level and month-to-date highs. Eclipsing this barrier of resistance, combined with a sustained decline by the VIX Index, might hint at potential for crude oil prices to embark on another leg higher.

Volatility Index 20200824 19.31

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USDJPY D1 08 21 2020 1929

Price action has built on bearish momentum which has seen the pair trade lower over the past 2 days while trading back within the zones of support and resistance shown by the blue rectangles. More recently however, after approaching the zone of support around 105.35 – 105.40, the global reserve currency looks to have resisted a move lower on the back of what appears to be short term dollar strength (vs G10 currencies)

In the event of a stronger dollar, USD bulls may consider a break and close above the 105.72 as the initial hurdle before bringing into play the 106.15 – 106.24 zone of resistance.

If the demand for Japanese Yen continues at the expense of the dollar, USD/JPY bears may consider a break and close below the 105.35 – 105.40 zone as the litmus test for continued lower prices. Should this transpire, the next level of support becomes 105.20 followed closely by the 104.96 level.

 

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