Gold bounced but it is not a pullback yet

Market Recap

Prices as of previous day instrument closing.

• FED rose rates to 125-150 bp but inflation remained below the FED`s 2% target. Yanet Yellen said “Our understanding of the forces driving inflation in imperfect”, thus even GDP growth forecasts for the next year changed to 2.5% from 2.1% the next rate hike probably would be made when inflation will be close to its target . While US President Trump suggested that the tax deal will boost GDP growth to 4%, the FED was more cautious suggesting that a tax reform could have a short term impact with moderate growth effects.

• The DJIA continued to overperform other US gauges as it made another record close. The index rose 80.63 points or 0.33% to 24,585.43 and the Nasdaq Composite gained 13.48 points or 0.20% to 6,875.79. The S&P500 slid 1.26 points or 0.05% to 2,662.85. In Paris the CAC 40 slid 0.51% or 27.74 points to 5,399.45 while the DAX in Frankfurt lost 57.89 points or 0.44% to 13,125.64.    

• In the FX market EURUSD rallied to 1.1826, up 0.72% and EURGBP was almost flat at 0.8812, down 0.04%. GBPUSD rose 0.76% to 1.3420.  USDJPY slid 0.88% to 112.54.

• Precious metals rallied as XAUUSD rose 0.88% to 1,255.5 $/oz and XAGUSD did even better as it closed at 16.07 $/oz, up 2.16%.

Chart of the day: 

XAUUSD (daily chart)

The commodity tested the 50% Fibonacci retracement of the bullish wave started 12 months ago that ended in September. The rebound seen yesterday it is not a pullback as the shiny metal will need to test the 200 day MA or the lower side of the bullish channel.  Below this week low 1,236 $/oz is expected another selloff. In case XAUUSD would rise above pullback areas a short squeeze could materialize.

Economic Calendar

The busiest day in this packed week is bound to increase volatility. Rate decisions by the SNB (9:30 CET), BOE (13:00 CET) and ECB (13:45 CET) are scheduled to take place. Rates are expected to remain unchanged as focus shifts to change in language on policy. More specifically, inflation outlook is the focus for the BOE and tapering of asset purchases for the ECB. The EU summit starts today in which European leaders discuss Brexit among other things. Key data for the euro are the manufacturing and services PMI of France, Germany and the eurozone. The flash releases (9:00-10:00 CET) are broadly expected to decline from November. UK retail sales at 10:30 CET, forecasted to rise 0.6% MoM, wrap up the morning data releases.
In the afternoon, US jobless claims are forecasted to remain in line with previous week at 236,000.  Retail sales are expected to rise 0.3% MoM from 0.2%. Both releases are scheduled for 14:30 CET. US manufacturing and services PMI, forecasted to rise, end the day at 15:45 CET.

Technical Analysis

EURUSD (Daily timeframe)

EURUSD could test soon the supply line that links lower lows in area 1.1870 and a breakout could bring the pair to test another dynamic resistance in area 1.1940. Beneath 1.1720 EURUSD could slide to 1.1665.

EURCHF  (Daily timeframe)

The rate tested the lower side of the bullish channel and in case EURCHF will trade below 1.16 it may slide to 1.14.  Above its 2017 top, 1.1732 , the rate could test 1.18. Key level 1.2020 will be reached in case of simultaneous weakness of the Franc and rally of the EUR.

USDMXN (Daily timeframe)

The rate is developing a medium term trading range in the area 19.35-18.49. Above the higher side USDMXN could test 19.76 and then 20 while below the lower side of the range USDMXN could slide to 18.24 and then test 18.

GBPUSD (Daily timeframe)

GBPUSD started to make lower highs this month, and a breakout of the short term supply line could lift the rate to test its 2017 top at 1.3657. Beneath 1.3310 GBPUSD could slide to 1.3215 and then 1.3110.