Rising USD hits gold ahead of Jackson Hole

Updated August 19, 2022

Headlines

*Fed officials offer mixed signals on size of September rate hike

*Biggest monthly increase in German producer prices on record (+5.3% m/m)

*UK retail sales beat estimates, +0.3% vs -0.2%, prior -0.1%

*Japanese inflation continues to accelerate beyond BoJ’s 2% price goal

US equities edged higher on a relatively quiet day. All major indices closed mildly in the green. The Dow sits above its 200-day SMA, the S&P500 remains below. Energy was the principal outperformer, as oil ticked higher. Directionless trading has continued in Asia. Futures in Europe and the US point to a lower open.

USD continued its push north after mostly encouraging data. It added +0.8% trading to around its highest level since July. Strength was noticeable against European currencies as the region’s natural gas prices reached a new all-time high. EUR broke the range low a round 1.01. GBP has moved below mid-June support at 1.1933. USD/JPY has advanced above long-term resistance at 135.16 and the 50-day SMA at 135.44.

Market thoughts – Classic Summer lull

It’s that time in markets where we can start to overthink price action and reasons for why price movement are happening. It was the second lightest volume session of the year in US equities. Brent crude’s rebound helped the energy sector but remains below the 200-day SMA at $97.79. 95% of S&P500 companies have reported second quarter earnings. Roughly three-quarters of them have managed to beat analyst estimates.

Wall street’s fear gauge, the Vix, has softened further. It could be its tenth week of very steady declines. The volatility index is now trading below 20 which is its long-term average. Dollar strength has been the most notable theme this week. Upbeat US economic data and continued hawkish Fedspeak have helped. The break of key support levels in EUR and GBP could see these majors fall down to the lows if we get weak closes in these thin trading conditions.

Chart of the Day – Gold looks to have rolled over

The stronger dollar has weighed on the yellow metal this week. Fed chatter has suggested the FOMC will raise rates in the following few months. We could see more hawkish repositioning in the week ahead of the Jackson Hole symposium. This year’s topic is “reassessing constraints on the economy and policy”. Fed Chair Powell was yesterday confirmed as speaking on August 26.

The precious metal is dropping for a fifth straight day this morning. The decline of roughly 2.5% this week has breached May support at $1786 and the 50-day SMA at $1774. Yesterday saw prices break a Fib level of this year’s high to low move at $1761. $1753 is the next near-term support level in gold. $1721 looks to be the next marker of note.

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