Talking Points:

- Gold Prices Initiate Bullish Series, RSI Breaks Out Ahead of FOMC Minutes.

- USD/JPY Range Unravels, U.S. Treasury Yields Pulls Back From Monthly High.

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

DailyFXXAU/USD

Gold prices may continue to exhibit a bullish behavior over the coming days should the Federal Open Market Committee (FOMC) Minutes rattle expectations for higher U.S. interest rates.

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The precious metal appears to be on track to extend the rebound from the monthly-low ($1261) as it initiates a string of higher highs & lows, and the fresh comments from Chair Janet Yellen and Co. may heighten the appeal of bullion should Fed officials largely defend the downward revision in the longer-run forecast for the benchmark interest rate. Even though the FOMC appears to be on course to deliver a December rate-hike, it seems as though market participants are unconvinced the 2018-voting members will implement higher borrowing-costs in the first-half of 2018 amid the fresh appointments to the Board of Governors.

With that said, gold prices may continue to extend the advance from earlier this year, with the broader outlook for the precious metal becoming increasingly constructive especially as it breaks out of the downward trend carried over from the previous year.

XAU/USD Daily Chart

Gold Initiates Bullish Series, RSI Breaks Out Ahead of FOMC Minutes
  • Topside target are back on the radar as XAU/USD appears to have made a failed run at the August-low ($1251), while the Relative Strength Index (RSI) breaks out of the bearish formation carried over from the previous month.
  • Need a close above the near-term hurdle around $1289 (23.6% expansion) to $1291 (50% expansion) to open up the next topside target around $1297 (23.6% retracement) to $1302 (50% retracement) followed by the Fibonacci overlap around $1312 (61.8% expansion) to $1315 (23.6% retracement).
USD/JPY

USD/JPY faces a growing risk of giving back the advance from the September-low (107.32) as it snaps the range-bound price action carried over from the previous week, while U.S. Treasury Yields continue to pullback from the monthly highs.

USD/JPY appears to have made a failed run at the July-high (114.50) even though the FOMC endorses another rate-hike for 2017, and the near-term rebound in the exchange rate may continue to unravel as the U.S. fiscal outlook remains clouded with uncertainty. In turn, the broader outlook for dollar-yen remains largely capped especially as the pair preserves the range from earlier this year.

Keep in mind, Japan’s general election are coming up on October 22, and the upcoming opinion polls may sway the near-term outlook for USD/JPY should Prime Minister Shinzo Abe’s coalition government struggle to retain their majority.

USD/JPY Daily Chart

USD/JPY Daily Chart

Chart - Created Using Trading View

  • Broader outlook for USD/JPY remains confined by the Fibonacci overlap around 113.80 (23.6% expansion) to 114.30 (23.6% retracement), with the pair at risk for a further losses especially as the Relative Strength Index (RSI) pulls back from trendline resistance and retains the bearish formation from May.
  • Break below the 200-Day SMA (111.86) opens up the key pivot around 111.10 (61.8% expansion) to 111.60 (38.2% retracement), with the next downside region of interest coming the 110.00 (78.6% expansion) handle.

Retail Sentiment

Retail Sentiment

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  • Retail trader data shows 83.8% of traders are net-long with the ratio of traders long to short at 5.18 to 1. The number of traders net-long is 5.9% higher than yesterday and 24.5% higher from last week, while the number of traders net-short is 2.8% higher than yesterday and 24.7% lower from last week.
  • Retail trader data shows 41.6% of traders are net-long USD/JPY with the ratio of traders short to long at 1.4 to 1. The number of traders net-long is 1.1% higher than yesterday and 12.4% lower from last week, while the number of traders net-short is 17.3% higher than yesterday and 31.1% higher from last week.
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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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