The markets have been in a holding pattern thus far in today’s session. There is no doubt many traders are sitting on their hands ahead of this afternoon’s key macro event: Jay Powell’s speech, titled "Monetary Policy Framework Review" at the Jackson Hole Economic Policy Symposium.
Powell likely to re-iterate need for keep policy extraordinary loose
As mentioned previously, I think Powell and other central bank heads at the Jackson Hole Symposium are likely to reaffirm their commitment for running QE at full throttle for a while yet. If so, this should keep gold supported and keep the pressure on the dollar. Renewed falls in bond yields should underpin the appeal of noninterest-bearing assets like gold and silver. Meanwhile, if investors become concerned that the central banks are overcooking inflation then this should also keep gold bulls happy, since the metal is widely seen as an inflation hedge, among its other uses. However, if Powell disappoints by delivering less-dovish remarks than expected then gold could drop sharply. So, there’s that risk, even if gold’s chart looks constructive (see below).
GDP and jobless claims likely to provide short-term volatility for dollar
Powell’s speech is scheduled for 14:10 BST. Ahead of it, we will have a couple of US macro data to look forward to as well: Preliminary second quarter GDP and weekly unemployment claims. Although ‘preliminary’ usually means the first estimate, this is not the case for US GDP as we have already had the ‘advance’ estimate previously. Thus, unless GDP is revised sharply from the initial estimate of -32.9%, don’t expect too much of a market reaction. Meanwhile jobless claims are expected to have totalled 1.00 million last week, down from 1.11m the week before. Anything more than a million will be seen as negative for the dollar, I reckon. In any case, don’t expect the dollar’s potential reaction to last long as the focus will then quickly turn to Powell’s speech.
Gold formed bullish signal Wednesday, but not much follow-thru yet
Gold managed to bounce back sharply on Wednesday even as risk assets also rallied with the Nasdaq and S&P 500 hitting new record highs. The metal has started today’s session slightly weaker, but after yesterday’s big rebound don’t be surprised to see more gains later today, especially if the Fed’s Jay Powell delivers dovish remarks at his eagerly-anticipated speech.
Following Wednesday’s rebound, gold has created a bullish engulfing/hammer candle on the daily chart, around the rising trend line. This bullish-looking candle was also formed around the $1920 key support, the 2011 and the then all-time high. Once massive resistance, this level is now the most important support that the bulls will need to defend and so far they are doing a good job at that. Thus, for as long as gold holds its own above $1920 on a daily closing basis, the path of least resistance would remain to the upside.
Source: TradingView.com and ThinkMarkets
For now, though, the bulls’ advance has come to a halt near resistance at $1955, where a short-term bear trend line comes into play. This trend line is derived from connecting the recent lower highs. But these lower highs are formed against the longer-term higher highs and higher lows. So, gold’s longer-term technical outlook remains bullish and this make it more likely that the metal will break higher and through $1955 resistance, possibly as early as later on in the day.
However, a decisive breakdown would be bearish in the short-term outlook, especially if the rising trend line around $1900 also gives way. In this potential scenario, gold could go on to drop below the next low circa $1863 before deciding on its next move.
But my base case is that the bulls may defend their ground and so what I am looking for is the potential emergence of some bullish pattern to indicate the up trend has resumed. For me, one such signal would come in the form of a clean break above key short-term resistance in the $1955 range and the bearish trend line.