Entering this past week, there were three very large elephants in the room that needed to be addressed:
- Would the USMCA deal be reached?
- What will be the results of the UK elections?
- Will the U.S. and China sign a Phase One deal before tariffs go into effect on December 15?
We now have the answers to 2 ½ of those questions and perhaps the markets will start paying attention to the fundamentals and technicals again, rather than the drama. A USMCA deal was reached, Boris Johnson won the UK election in a landslide and the U.S. and China “agreed in the text” to a trade deal, which will result in the cancellation of the pending tariffs on December 15. Although there is still some drama that needs to play out over the U.S.-China trade deal (why isn’t it signed yet?), most of the uncertainty entering the week has been removed.
What does the removal of these uncertainties mean for the markets?
It means they will once again start paying attention to the week ahead, rather than watching for exit polls and tweets.
It also means that people might actually care that there is a hammer on the daily USD/MXN chart and that price is diverging from the RSI. Even if this breakdown out of the long-term triangle holds, there is still room for the pair to bounce back up to the upward the sloping trendline of the triangle near 19.3000.
Source: Tradingview, Forex.com
It means, too, that although GBP/USD is was pulling back a bit on Friday after briefly trading above 1.3500, traders may come in and buy on this dip and the flag pattern might play out to up near 1.3800. The RSI is overbought near 80, so a pullback toward 1.3200 would be normal to let the RSI unwind before price heads higher.
Source: Tradingview, Forex.com
And it means that gold could hold 1450, which is the 38.2% retracement level from the lows in late May to the highs in early September. And there is still a possibility for gold to break higher out of the flag formation and head up toward the target near 1720.
XAU/USD
Source: Tradingview, Forex.com
Hopefully with many of these uncertainties out of the way, the markets will return to determining prices through price discovery, rather than through headlines.