Federal Reserve indicated a 25 basis point rate cut yesterday was not the start of a lengthy easing cycle. Will the XAU/USD continue retracing lower?
Central banks continuing purchases of gold are a major support for gold prices. Russia’s central bank led gold purchases by central banks in 2018, acquiring 274.3 metric tons to reduce reliance on the U.S. dollar. Other big buyers included Turkey, Kazakhstan, India, Iraq, Poland, and Hungary. In first-quarter this year gold purchases by central banks, led by Russia and China, were the highest in six years as countries diversify their assets away from the U.S. dollar. Global gold reserves rose 145.5 tons in Q1, a 68 percent increase from a year earlier, according to World Gold Council. Central banks bought 651.5 tons in 2018, versus 375 tons in 2017. That’s the largest net purchase of gold since 1967. However as the Federal Reserve cut interest rates on July 31, 2019 for the first time in ten years, Fed Chairman Jerome Powell said “It’s not the beginning of a long series of rate cuts,” while adding “I didn’t say it’s just one rate cut.” And President Trump said it was not “ the beginning of a lengthy and aggressive rate-cutting cycle” that markets “wanted to hear.” Slower than expected pace of Fed monetary easing is bearish for gold prices.
On the 4-hour timeframe the XAU/USD:H4 is retracing lower after breaching the support line, and is testing the 200-period Moving Average MA(200). These are bearish.
- The Parabolic indicator has formed a sell signal.
- The Donchian channel indicates downward bias: it is widening down.
- The MACD indicator gives a bearish signal: it is above the signal line and the gap is narrowing.
- The RSI oscillator is falling but has not reached the oversold zone yet.
We believe the bearish momentum will continue after the price breaches below the lower boundary of Donchian channel at 1404.08. This level can be used as an entry point for placing a pending order to sell. The stop loss can be placed below the last fractal high at 1435.07. After placing the order, the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the expected profit/loss ratio to the breakeven point. If the price meets the stop loss level (1435.07) without reaching the order (1404.08), we recommend cancelling the order: the market has undergone internal changes which were not taken into account.
Technical Analysis Summary
| Order | Sell | Sell stop | Below 1404.08 | Stop loss | Above 1435.07 |
Market Overview
Equities retreat as FED cuts rates but rules out significant easing
Dollar strengthens despite Fed’s stopping of quantitative tightening
US stock indexes retreat deepened on Wednesday as the Federal Reserve cut interest rates quarter point but indicated this was not “the beginning of a long series of rate cuts.” The S&P 500 fell 1.1% to 2980. The Dow Jones industrial average lost 1.2% to 26864. Nasdaq composite index tumbled 1.2% to 8175. The dollar strengthening accelerated despite Fed statement it would stop reducing its $3.6 trillion in bond holdings starting August 1, two months ahead of schedule. The live dollar index data show the ICE (NYSE:ICE) US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, jumped 0.6% to 98.59 and is higher currently. Stock index futures point to mixed market openings today
DAX 30 lead European indexes rebound
European stocks paused their retreat on Wednesday ahead of US Federal Reserve interest rate decision. EUR/USD joined GBP/USD’s continued slide yesterday with both pairs falling currently. The Stoxx Europe 600 edged up 0.2%. Germany’s DAX 30 rose 0.3% to 12189.04. France’s CAC 40 inched up 0.1% but UK’s FTSE 100 slid 0.8% to 7586.78.
Nikkei rises while other Asian indexes fall
Asian stock indices retreat slowed today as US-China trade negotiations concluded in Shanghai with no major breakthrough with talks expected to continue in Washington in September. However China did agree to buy more US agricultural products. Nikkei however managed to end 0.1% higher at 21540.99 with yen accelerating its slide against the dollar. Chinese stocks are falling despite Caixin report China's manufacturing improved in June: the Shanghai Composite Index is down 0.8% and Hong Kong’s Hang Seng Index is 0.6% lower. Australia’s All Ordinaries Index extended its losses 0.4% as Australian dollar climb against the greenback resumed.
Brent gains after seventh straight weekly decline is US inventories
Brent futures prices are inching higher today. Prices rose yesterday after the Energy Information Administration report US crude inventories dropped by above expected 8.5 million barrels last week while gasoline inventories fell by 1.8 million. October Brent crude rose 0.7% to $65.05 a barrel on Wednesday.
Order Sell
Sell stop Below 1404.08
Stop loss Above 1435.07
Order Sell
Sell stop Below 1404.08
Stop loss Above 1435.07