Fed and Israel moving the markets

The USD tended to weaken against its counterparts yesterday with Fed Chairman Powell’s speech feeding the bearish sentiment further. We note that Powell despite not actually committing to any form of action noted that inflation is still too high and that Fed policymakers are united in the effort to bring inflation back to the bank’s 2% target. Nevertheless, the Fed Chairman acknowledged the progress made so far. At this point, it should be added that US Bond yields continued to rise, with the 10-year yield at some point nearing 5% a level not seen in 16 years.

The spike in US yields tends to highlight the market expectations for the US economy to enter a recession and thus it drove US stock market indexes noticeably and uniformly lower. It should be noted though that the release of earnings reports also tended to affect US stock markets with Netflix making the headlines. The movie streaming company’s share price jumped around 16% yesterday as it announced a big jump in the number of subscribers, in a sign that the crackdown of the company on password sharing is bringing results and could improve the financial position of the company in the future.

Yet on an international level, the Israeli conflict seems to intensify market worries for a possible escalation as diplomacy does not seem to be having the results hoped for. It should be noted that a massive land invasion of Israeli forces in Gaza could cause reactions from Arab countries in the entire Mid-East region. Already reports are surfacing that Israel’s Defence Forces have received the green light from the government, while the width and timing of such an operation is still to be seen. It’s characteristic that gold’s price despite the yields of US bonds being at very high levels, continues to rally as it receives safe haven inflows.

Specifically gold’s price rallied yesterday breaking the 1955 (S1) resistance line, now turned to support. Given the steep upward trendline guiding the precious metal and the fact that the RSI has reached the reading of 70, implying a strong bullish sentiment on behalf of the market, we maintain our bullish outlook for gold. Yet we note that the RSI indicator may also imply that the precious metal’s price is nearing overbought levels and is ripe for a correction lower. Should the bulls maintain control over the precious metal’s price, we may see it breaking the 1987 (R1) resistance line and aim for the 2015 (R2) resistance level. Should the bears take over, we may see gold’s price breaking the prementioned upward trendline, in a first signal of an interruption of the upward movement, break the 1955 (S1) support line and aim for the 1930 (S2) support level.

On the commodities front, we note the rise of oil prices at a moment when there seemed to be fundamentals favoring a stabilization. Market worries stoked by the Israeli conflict, about a tightness in the supply side of the oil market, intensify as the possibility of major oil-producing countries engaging in the conflict increases.

On a technical level, we note that WTI prices continued to rise breaking the 87.50 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for WTI’s price given the upward trendline guiding it, yet also note that the price action has reached the upper Bollinger band, which may slow down the bulls somewhat. Should buyers continue to lead WTI’s price, we may see it breaking the 91.50 (R1) resistance line while should the bears take over, we may see WTI’s price breaking the prementioned upward trendline the 87.50 (S1) support line and aim for the 84.50 (S2) support level.

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In the European session we get Germany’s Producer prices rate for September, the UK’s retail sales rate for September and ending of the day is Canada’s retail sales rate for August. On a monetary level, we note the speech by BOJ Governor Ueda during the European session and the speeches by Philadelphia Fed President Harker and Cleveland Fed President Mester during the American session.