Talking Points:

- Gold Prices Bid Amid Growing Uncertainty Surrounding Fed Nomination.

- USD/CAD Preserves Bullish Formation Ahead of Canada Employment Report.

- Sign Up & Join DailyFX Currency Analyst David Song to Discuss Key FX Themes & Potential Trade Setups.

DailyFX TableXAU/USD

Gold looks poised for a near-term recovery as it breaks the recent series of lower highs & lows, and the precious metal may exhibit a more bullish behavior over the coming days as market participants appear to be moving away from fiat currencies.

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With Fed Chair Janet Yellen’s four-year term ending on February 3, 2018, headlines pointing to a potential shift in leadership seems to be rattling the U.S. dollaras U.S. President Donald Trump is expected to appoint a more dovish candidate to lead the central bank. Even though Fed Fund Futures are pricing a greater than 70% probability for a December rate-hike, the upcoming vacancies in the Federal Open Market Committee (FOMC) may keep gold prices bid especially as the precious metal breaks out of the downward trend carried over from the previous year. In turn, a material shakeup at the Federal Reserve may heighten the appeal of bullion especially as gold prices break out of the downward trend carried over from the previous year.

XAU/USD Daily Chart

XAU/USD Daily Chart
  • XAU/USD has staged a meaningful pullback after failing to clear the $1359 (61.8% expansion) hurdle, but the weakness appears to be abating ahead of the August-low ($1251) as gold prices snap the bearish sequence from earlier this week; keeping a close eye on the Relative Strength Index (RSI) as it appears to be coming off of trendline support.
  • With that said, first topside hurdle comes in around $1289 (23.6% expansion) to $1291 (50% expansion), with the next region of interest coming in around $1297 (23.6% retracement) to $1302 (50% retracement).

USD/CAD pares the decline from earlier this week as the U.S. ADP Employment report showed private payrolls increasing 135K in September, and the dollar-loonie exchange rate may continue to retrace the decline from the summer months as it preserves the bullish formation carried over from the previous month.

Even though Canada is anticipated to add another 12.0K jobs in September, recent comments from the Bank of Canada (BoC) suggests Governor Stephen Poloz and Co. will keep the benchmark interest rate at 1.00% as officials warn ‘there remains some excess capacity in Canada’s labour market, and wage and price pressures are still more subdued than historical relationships would suggest.’ Nevertheless, the BoC may continue to normalize monetary policy in 2018 as ‘recent economic data have been stronger than expected, supporting the Bank’s view that growth in Canada is becoming more broadly-based and self-sustaining,’ and the shift in USD/CAD behavior may continue to unfold over the months ahead especially as Federal Reserve officials project a more shallow path for the benchmark interest rate.

USD/CAD Daily Chart

USD/CAD Daily Chart

Chart - Created Using Trading View

  • Near-term outlook for USD/CAD remains tilted to topside as the pair continues to trade within the upward trending channel, with a close above the 1.2510 (78.6% retracement) hurdle raising the risk for a move back towards 1.2620 (50% retracement).
  • Next topside target comes in around 1.2770 (38.2% expansion) to 1.2830 (38.2% retracement), which largely lines up with the August-high (1.2778), but a string of failed attempts to close above the 1.2510 (78.6% retracement) hurdle may bring the downside targets back on the radar as the rebound from the September-low (1.2061) loses momentum.

Retail Sentiment

Retail Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

  • Retail trader data shows 79.1% of traders are net-long Spot Gold with the ratio of traders long to short at 3.79 to 1. The number of traders net-long is 7.6% higher than yesterday and 16.4% higher from last week, while the number of traders net-short is 11.1% lower than yesterday and 25.8% lower from last week.
  • Retail trader data shows 54.9% of traders are net-long USD/CAD with the ratio of traders long to short at 1.22 to 1. In fact, traders have remained net-long since June 07 when USD/CAD traded near 1.35087; price has moved 7.5% lower since then. The number of traders net-long is 10.8% lower than yesterday and 6.4% lower from last week, while the number of traders net-short is 16.5% higher than yesterday and 15.5% higher from last week.
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--- Written by David Song, Currency Analyst

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