Forex - Gold Trades Above $1195 As Last Dollar Supports Give Way

Forex News and Events:

A new day, a fresh round of USD-selling, and another record high for gold. The unrelenting momentum of gold’s rally has surprised many people, re-igniting chatter about the possibility of a bubble or blow-out reversal. But while the 26% rise in the past 3 months is still impressive, compared to previous commodity market bubbles, the pace and scale of the move is far from extraordinary. If we look back at the oil rally in 2008; prices rose over 35% in the 3 months leading up to the peak, and in the soy bean rally of 1973 contracts traded 98% higher in the three months before the crash.

By these standards then, gold has room to go even higher before it approaches ‘bubble’ status, and a test $1200 levels now seem more of a formality to overcome on the march higher than a credible top. Nevertheless, with the 14-day RSI steaming higher to 83 yesterday (where levels above 70 are considered to be an ‘overbought’ signal), it seems likely that a temporary pause and consolidation may be due before we tackle the remaining upside targets.

 Meanwhile, the spate of USD weakness meant it was only a matter of time before USDCHF pushed below parity, and overnight the USD bears succeeded in ensuring a daily close below the psychologically 1.0000 level. Recent comments from the SNB’s Roth that extraordinary stimulus measures would soon be withdrawn gave speculators the window of opportunity they had been looking for to break down final USD supports.

However, looking at the suspected intervention by the SNB this morning in EURCHF, we remain cautious that the threat of deflation still looms heavy over the Swiss economy, SNB members are clearly still uncomfortable with the CHF appreciation. Their approach to fending off deflation by weakening the currency may soon be mirrored by Japanese authorities after the JPY strengthened to 86.30 levels overnight; levels not seen since 1995. The collapse of USDJPY came in the wake of the BoJ Minutes which highlighted a growing preoccupation with deflationary concerns, and the clamour of Japanese officials who have subsequently hit the wires to verbally intervene on further JPY strength seems to suggest that rhetoric may soon give way to physical intervention in the currency market if the trend continues. As we move ever closer to year-end, it seems the only likely source of support for the USD lies in the possibility of investors unwinding positions to lock in their P&L before the holidays; but in the meantime we have very little data scheduled for release and can expect patchy liquidity over this long weekend to throw up a few curve balls.

Today's Key Issues (time in GMT):

00:00 EUR Germany CPI, % m/m (y/y) Nov exp: 0.0 (0.5) prev: 0.1 (0.0)

The Risk Today:

EurUsd Yesterday's break of 1.5063 saw a quick round of stop-losses take us up to 1.5100 resistance, and overnight a second round of stop-hunting has seen us top out at 1.5142. 1.5012 remains the downside pivot level to watch (a break of which would likely send us back into the prior 1.4800-1.5000 range); whilst the topside focus should be on a break of 1.5142 looking to test 1.5200.

GbpUsd We mentioned yesterday that only a break of 1.6750 would negate the bearish bias for GBPUSD, and after trading to a high of 1.6746, the pair has since slumped back down through the 1.6640 support as models quickly pile into the short trade, and Friday’s 1.6459 lows are the last line of defence until 1.6272 downside support. If however another round of USD weakness does allow us to take out 1.6750, then we will negate the bearish trend and 1.6840 resistance beckons.

UsdJpy The long term downtrend remains the dominant bias, and having emphatically taken out 87.15 major support (and year's lows), we have touched a low of 86.30 and are in waters not charted since 1995. Japanese discomfort at JPY strength aside, the technical picture leaves very little support below, with the next notable price action around 83.60 levels with 81.85 and 79.75 below that.

UsdChf USDCHF broke below 1.0000 support yesterday and closed around 0.9960 levels, confriming a continuation of the bearish trend and now focussing attention on 0.9630 (2008 lows). Rallies towards 1.0050 should be met with decent supply, and above there, 1.0075 (support on the way down) brings fresh sellers.