Gold breaks support, USDCNH breaks resistance but S&P 500 circles ahead of UofM – DailyFX | Jewelry Dukan

S&P 500, FOMC, Dollar, USDCNH, Gold and USDJPY in Conversation:

  • That market perspective: USDJPY bearish below 141.50; Gold Bearish Below 1,680
  • While the S&P 500 caused the risk appetite spectrum to slip slightly this past session, real trend is unlikely to materialize unless the fundamental reversal can meet FOMC expectations
  • Full exposure to US indices or EURUSD may provide a high motivation bar, but USDCNH and Gold have per-dollar breaks ahead with Chinese and UofM data

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Risk assets fall, but traction remains a high bar: S&P 500 and Event Risk

The FOMC rate decision is about three trading days away. Expecting the market to settle into a clear bias towards speculative trends before the fundamentals kick in seems impractical given the simple claim of volatility. There remain unresolved fundamental issues and projected event risks on Friday that may tap into serious interest but are sweeping interest and ranging from the avalanche of interest rate announcements due next week beginning with the Federal Reserve in earnest on Wednesday afternoon/evening. In practice, that means restraint for me. The S&P 500 is technically down -1.1% this session, tentatively slipping below range support and the 61.8% Fibonacci retracement of the 17 Jun-16 Aug bull trend. Volume behind the market has also been remarkably resilient. And yet the market’s traction left much to be desired for those looking for conviction. The volatility (ATR) of the last 2 trading days compared to the previous two weeks shows a sharp slowdown. It’s possible we can reverse confidence – bullish or bearish – ahead of the FOMC spark next week, but I remain skeptical.

Chart of the S&P 500 Emini futures with volume50 and 200-day SMAs and 1-day ROC (daily)

Chart created on Tradingview Platform

Looking ahead to next week’s economic calendar, it should be clear why an artificial sense of resilience has permeated the markets. With the most prolific broader fundamental themes centered around monetary policy complications and recession risk over the past few weeks and months, the points on deck should clearly be cause for concern. The focus of interest rate speculation going forward will mainly fall on the Federal Reserve at 18:00 GMT on Wednesday. Fed fund futures are still pricing in around a 20% chance of a 100 basis point rate hike while the subsequent update of the SEP (Summary of Economic Prospects) forecasts will be closely monitored. Beyond this single release, the PBOC and BOJ are being pressured for their reserved credentials. On the restrictive side, the BOE is seen to rise 50 basis points, the SNB is expected to rise 75 basis points to follow its eurozone counterpart and numerous emerging market groups will face high volatility. On the growth side, in addition to the SEP, September’s developed market Purchasing Managers’ Indices will be a key run on Friday.

Critical macro event risk on the global economic calendar for next week

Calendar Created by John Kicklighter

Markets like Gold are still moving: Gold and USDCNH

Of course, as we monitor the markets, most of our attention is focused on top-level assets. But the more liquid and fundamentally profitable assets are, the more dependent they will be on resolving next week’s critical event risk. But not all markets have come to a speculative standstill. A very notable technical development this past session was Gold’s slide through 1,675. This level was a range floor for the commodity that stretched over two and a half years. There was also the technical relevance of a long term Fibonacci level and the 200 week moving average in the same area. In other words, reaching this level was no small feat. However, it’s not the biggest fundamental surprise given that global interest rates are rising rapidly. This “alternative to fiat” struggles when yields rise because gold doesn’t offer interest like financial assets.

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Chart of Gold Futures 20 and 200 Week SMAs with Volume, COT Net Spec Positioning (Weekly)

Chart created on Tradingview Platform

Another technical development that caught the eye of those who have been following pre-pandemic macro developments was USDCNH’s surge above the 7.0000 level on Thursday. In the past, this particular level in the US-China exchange rate has been seen as a political turning point, with Western observers believing China is looking to devalue its domestic currency to blatantly offset sanctions on its own exports. At the previous session, US President Biden announced that he had signed an executive order further reviewing Chinese investments in the United States’ tech sector. I don’t think the same level has the same meaning as before, but many of the issues remain. Still, with a clear mismatch in monetary policy, an appetite for security and trade issues; the load is not beyond expectations.

Chart of USDCNH with 20- and 200-day SMAs (Daily)

Chart created on Tradingview Platform

For Friday: Volatility Risks in China Data and University of Michigan Sentiment Survey

While I don’t think this latest 24-hour calendar can systematically override the combination of the weekend’s expected liquidity drain and next week’s overwhelming fundamental run to create a serious trend, it can reasonably stimulate volatility. There are a number of event risks worth monitoring, but separating the economically important from the market movements is an important exercise. For example, the UK Retail Sales Report, New Zealand Business Sentiment Survey and Canadian Capital Flows are all interesting given the relative position of their respective currencies. However, the series of Chinese data for August is a comprehensive update of the world’s second largest economy, while the US sentiment survey is just one degree away from inflation and recession fears.

Critical macro event risk on the global economic calendar for Friday

Calendar Created by John Kicklighter

The biggest event risk for me is the University of Michigan sentiment report. In the last update, the US consumer reported a big leap in confidence that should help pull us out of a decades-long slump in confidence. This rebound played a crucial role in the market’s interpretation of the inflation numbers turning away from a potential peak, allowing for some serious market action. However, the fading of the CPI bearish trajectory has shaken convictions. If the UofM amplifies this skepticism about the recovery as it is a forward-looking indicator, it could tip a more exposed nerve about “fear” that actually addresses the liquidity state of the market. Beyond the headline, monitor expectations and inflation components.

Chart of UofM Consumer Confidence Overlaid on US GDP (Monthly)

Chart of the St. Louis Federal Reserve Economic Database with data from BEA and UofM

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