I analysed Gold at the end of October, a week has passed since then and my prediction that we are witnessing a correction of more than 8 months of declines is still valid. There are several technical signals supporting this correction, which I described in my analysis of 24 October and it is worth taking a moment to read it.
Currently, I would add another factor in favour of an upward scenario, as a bullish engulfing formation has appeared again, today’s bullish daily candle engulfs Monday’s.
What will Wednesday’s FED decision bring us?
Also on the fundamental side, there are many indications of a slight change in sentiment ahead of Wednesday’s FOMC meeting and the Fed’s evening (19:00) decision on US interest rates.
Just a week ago, the probability of a 75bp hike was 96%, while the day before the decision expectations had fallen to 87%. Perhaps the market is expecting a less hawkish course from the FED and hence a slight weakening of the dollar and rises in other currencies.
This is particularly noticeable on the yen and the Canadian dollar. The market will be closely watching the Fed chief’s conference, which will take place half an hour after the data expecting a hint of what direction the Fed intends to take in the coming weeks.
Yen may strengthen
Prime Minister Suzuki’s statement today:- “Further sharp weakening of the yen is unfavourable in the current situation, as rising inflation is a problem” may signal a near-term shift in BoJ monetary policy.
There was already a subtle hint here on Friday from the BOJ about a possible reduction in the volume of ETF purchases, and Minister Suzuki strikes the same tone with the above remark. A move by the BOJ is enough to really make a difference to the yen and perhaps Japanese policymakers are close to backing a decision to raise interest rates in Japan. Currently, Japan is the only country with negative interest rates at -0.1%. The latest inflation rate is 3%. If it turns out that the next reading will be higher which is quite likely – we can expect a move by the BoJ and a rate hike of a few points which will undoubtedly strengthen the Yen.
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The above analysis is based on the PA+MACD strategy, a detailed description of which you can read HERE . I will talk more about the PA+MACD strategy applied to these currency pairs during the live trading sessions which you can attend from Monday to Friday.
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