Waiting on US CPI report
Latest news from the US confirmed that the economy is expanding at a (very) moderate pace as the industrial sector is being badly hit by the strong dollar. Half of the 12 districts qualified the growth as “modest” while 3 of them characterized it as “moderate”. Wage growth remained subdued in most districts. On the inflation front, the last PPI figures did not reassure market participants ahead of today CPI report. Producer price index contracted -1.1%y/y, well below market expectations of -0.8%. The core gauge also came short of expectations, printing at 0.8%y/y versus 1.2% expected. Moreover, retail sales indicates that Inflation pressure would have therefore remain subdued in September as consumers decided to put savings from lower oil prices aside.
The Federal Reserve is going through a difficult time. For over a year, the central bank prepared the market for a rate hike and at the very last minute the economic machine seized up and started showing signs of weakness. The greenback surged more than 20% on a trade-weighted basis as market participants started to price in the upcoming lift-off. The situation is quite different right know, the strong dollar is hurting the economy. We need to see a weaker dollar before starting to see any improvement on the inflation and economic growth front. We therefore expect that the greenback will continue to depreciate as the market is definitely pricing out a rate in 2015. The few remaining job and inflation reports of 2015 will be key in determining the timing of the lift-off in 2016. Given the actual market conditions, our best guess is for March 2016.
Russia increases its forex reserves
In an effort to stabilize the Ruble, Russia is looking for to expand its Foreign-Exchange reserves (including gold). Today, Russia will disclose this amount for the period ending 9 of October. Russia’s Central Bank has already made clear that one of its primary objectives is to increase those reserve holdings up to $500 billion as stated by Elvira Nabiullina, head of the central bank, in a statement.
As China, the question is to know whether Russia could back its currency with gold. For the time being there is a deliberate strategy from Putin’s country to remove the dollar from the Russian international exchanges. Russia is also on its way to create its own payment system in order to be less dependent of the western countries’ influence. We believe that SWIFT won’t be part of the future Russian financial system.
We consider that Russia needs more gold in order to gain credibility. Gold definitely represents confidence in a Central Bank. For the time being, price of gold and Metals are improving and are now back to a 4-month high. The disconnection between physical gold and paper gold is happening. Indeed, the ratio between the two becomes massive as there as now more than 200 times more ounce of paper gold that physical gold. This ratio as doubled in a few years. In our view, we remain bullish on gold as there are growing evidence that the Fed will stay dovish for some more time and therefore it adds some upside pressures to metals’ prices. And with lingering low interest rate coupled with threat of a possible QE4, gold is definitely pushing higher to $1200 an ounce.
Gold - Bullish Momentum 
The Risk Today
EUR/USD keeps pushing higher. Hourly resistance at 1.1460 (18/09/2015 high) has been broken. Other resistance can be found at 1.1561 (26/08/2015 low). Support can be found at 1.1087 (03/09/2015 low). Stronger support lies at 1.1017 (18/08/2015 low). Expected test of the resistance at 1.1561. In the longer term, the symmetrical triangle from 2010-2014 favored further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). We remain in a downside momentum.
GBP/USD is pushing strongly higher. Hourly resistance at 1.5383 (22/09/2015 low) has been broken. Hourly support can be found at 1.5087 (05/05/2015 low). Stronger support can be found at 1.4960 (23/04/2015 low). Expected consolidation. In the longer term, the technical structure looks like a recovery. Strong support is given by the long-term rising trend-line. A key support can be found at 1.4566 (13/04/2015 low).
USD/JPY is pushing downward. There is a growing short-term momentum. The pair is holding below the 200-day moving average. Hourly support is given at 118.61 (04/09/2015 low). Stronger support can be found at 116.18 (24/08/2015 low). Hourly resistance can be found at 121.75 (28/08/2015 high). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 116.18 (24/08/2015 low).
USD/CHF is declining and has broken hourly support at 0.9528 (18/09/2015 low). Hourly resistance can be found at 0.9844 (25/09/2015 high). Expected consolidation. In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).
