XAU/USD Weekly Forecast (12th October 2020 – 16th October 2020)

Fundamental view:

Gold rallied last week. . U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin resumed their talks over the coronavirus aid plan, after U.S. President Donald Trump called off negotiations earlier this week. These catalysts favored the yellow metal.

Another thing that could have affected the gold market was Chinese markets opening again. Their indices played catch up and opened higher with the Shanghai Composite closing 1.68% higher. “The gyrations on whether we are going to get a stimulus or not seems to be affecting gold prices; gold has rallied on huge stimulus from the U.S. Federal Reserve and the government, and if that continues, it will support gold further,” said an Analyst. Gold has gained 26% this year, boosted by massive stimulus globally to cushion the pandemic’s economic impact.

The major economic events deciding the movement of the pair in the next week are Federal Budget Balance, Core PPI monthly report at Oct 13, Initial Jobless Claims, EIA Crude Oil Stocks Change at Oct 15, and Retail Sales monthly report at Oct 16 for US.

XAU/USD Weekly outlook:

Technical View:

Last week’s high was 0.66% higher than the previous week. Maintaining high at 1929.7 and low at 1872.8 showed a movement of 569 pips.

In the upcoming week we expect XAU/USD to show a bullish trend. The Instrument is trading above the 200 Simple Moving Average and the MACD trades to the upside. A solid breakout above 1947.6 may open a clean path towards 1967.0 and may take a way up to 2004.4. Should 1890.7 prove to be unreliable support, the XAUUSD may sink downwards 1853.4 and 1833.9 respectively. In H4 chart symmetrical triangle breakout favors prospects of a bullish trend. Also to be noted spinning top formation exerts the expectation of uptrend for the pair.

Preference
Buy: 1925.5 target at 1966.7 and stop loss at 1885.7

 

Alternate Scenario
Sell:  1885.7 target at 1935.9 and stop loss at 1925.5

Downward pressure on the safe-haven US dollar favors Yellow metal

Gold (XAU/USD) extends its bullish move into a third straight day on Friday, finally breaking through the $1900 mark while adding 1% a day. The main catalyst behind gold’s rally remains the persistent downward pressure on the safe-haven US dollar.

The dollar index.DXY, which was down 0.2% against its rivals, was headed for a second straight weekly fall. Renewed hopes for another fiscal stimulus pulled the dollar lower and raised expectations of a pick-up in inflation, said Howie Lee, an economist at OCBC Bank. Lee said that “The $1,900-level is a sticky one and, in my opinion, gold is going to trade around this level until the (U.S.) presidential elections.”

Gold, widely viewed as a hedge against inflation and currency debasement, has surged nearly 26% this year, boosted by unprecedented stimulus from governments and major central banks to cushion the pandemic’s economic impact.

Fitch Solutions said in a note that “We expect gold prices to continue to gather strength as market volatility rises with the November U.S. presidential elections fast approaching, albeit with ebbs and flows.”

In an interview, Trump said there was a good chance a deal over COVID-19 relief could be reached, but gave no details of such a pact. Meanwhile, House of Representatives Speaker Nancy Pelosi said legislation to help airline companies survive the pandemic fallout could only move through Congress with guarantees that a comprehensive aid bill would be developed too.

Trump’s likely return to the public engagements combined with hopes of a Joe Biden win at the November Presidential election supports the market mood, adding to the weight on the greenback. A Biden presidency could imply the likelihood of a large stimulus package.

XAUUSD 4 Hour Chart:

Support: 1884.0 (S1), 1873.6 (S2), 1865.3 (S3).

Resistance: 1902.7 (R1), 1911.1 (R2), 1921.4 (R3).

The yellow metal enjoys in the prevailing downward pressure on the greenback, we expect a bullish trend for XAU/USD.

(BOJ) Governor’s statement impacts yen

The Japanese economy remains in a severe situation but starting to pick up, the Bank of Japan (BOJ) Governor Haruhiko Kuroda said in a statement on Thursday.  He also commented that “Will watch the impact of COVID-19 and take additional easing steps if needed without hesitation”, “Japan consumer prices likely to fall for the time being”, and “Consumer prices likely to turn positive thereafter, gradually accelerate pace of increase as economy improves”.

Japan’s August month’s Current Account balance grew past- ¥1983.7 B forecast to ¥2102.8 B. Also on the positive side is Trade Balance – BOP Basis that rose beyond ¥137.3 B previous readouts to ¥413.2 B.

It has to be noted that the news from Yomiuri suggests Japan will remove the travel ban for 12 countries including China from next month also added to the market-positive sentiment. On the other hand, the Fed minutes and recent comments from US central bank policymakers have been trying to negate any pessimism.

US President Donald Trump recently said he feels perfect and the coronavirus (COVID-19) vaccine will be out just after the November month’s election, due to the political problems. The Republican chief is also ready to consider the Democrats’ counterproposal, as per the White House Chief of Staff Mark Meadows, if House Speaker Nancy Pelosi respects the administration’s stand. However, market players are less convinced as there is very little time before the world’s largest economy head to the Presidential election.  “Obviously, they are hoping to delay the answer until after November 3rd. Must focus on speed, and saving lives!” Mr. Trump wrote, tagging FDA Commissioner Stephen Hahn in the tweet. The political drama has already taken a long time and is still failing to offer any stimulus, which in turn adds to the odds of opposing Trump’s upbeat sentiment.

Moving ahead, the US vice Presidential Debate, at 01:00 GMT, will be an immediate catalyst and is likely to offer another positive signal to the risk tone. After that Investors will keep an eye on Japan’s Eco Watchers Survey for September and the US Jobless Claims for further reactions.

USD/JPY 4 Hour Chart:

Support: 105.67 (S1), 105.38 (S2), 105.16 (S3).

Resistance: 106.18 (R1), 106.39 (R2), 106.68 (R3).

Amidst all the prevailing catalysts creating a cautious optimism for greenback against yen, we expect a bullish trend for USD/JPY.

ECB Study weighs Euro

According to Robin Brooks, Chief Economist at the Institute of International Finance (IIF), the euro could become a deflation currency like the Japanese yen was before the Bank of Japan, under Kuroda’s leadership, launched unparalleled monetary stimulus in 2013.  While the Euro is strong in trade-weighted terms, it remains weak in real or inflation-adjusted terms. “That is not the equilibrium you want,” Brooks tweeted Tuesday.

As represented by the consumer price index, the cost of living in the Euro area fell into the negative territory in September. The negative inflation has triggered speculation that the European Central Bank would provide additional stimulus before the end of the year.

Central banks’ iron-clad independence appears to be waning due to attacks from politicians, according to a European Central Bank working paper. That’s according to a study that looked at 13 monetary authorities, accounting for 75% of global economic output, in the 2018-2019 period. The authors are Rodolfo Dall’Orto Mas, Benjamin Vonessen, Christian Fehlker, and Katrin Arnold — found that nearly half experienced a de-facto deterioration of autonomy.

With rate-setters having resorted to government bond purchases and other unconventional monetary stimulus measures, there’s been plenty of lambasting from politicians in recent years, prompting concerns the golden age of institutional independence might be ending.

They said “The deterioration in the de facto independence of central banks is a concern, as the reasons that helped forge the pre-crisis consensuses on central bank independence to achieve price stability remain valid today,”

Elsewhere, Traders were left looking puzzled this morning as President Trump’s twitter account caused havoc in the currency market. Trump has called for negotiators to stop any ongoing discussions with the Democratic party as their requests were unrealistic. President Trump has gone from hero to zero in a matter of days as traders previously cheered is Covid-19 recovery.

EUR/USD 4 Hour Chart:

Support: 1.1707 (S1), 1.1681 (S2), 1.1631 (S3).

Resistance: 1.1783 (R1), 1.1833 (R2), 1.1859 (R3).

As the ECB’s paperwork and the Brooks tweet impacts Euro unfavorably, we expect a bearish trend for EUR/USD.