Solid Goold Trading

Monday’s Edition

With Nick Goold

Financial markets were quiet for most of the final week of summer. U.S. inflation and GDP data were close to expectations, while durable goods orders were stronger than expected. The data had little impact on markets. Oil prices also moved lower as the conflict in the Middle East did not get worse as feared.

Technology stocks received some support from NVIDIA. The company reported better-than-expected earnings and gave a stronger outlook for third-quarter revenue. However, the main event of the week was Fed Chairman Warsh’s speech at Jackson Hole on Friday.

Warsh was more concerned about inflation than markets expected. He said the U.S. economy remained strong and inflation was still too high. After his comments, the chance of a September rate hike rose to around 62%, from about 33% before the speech. The U.S. dollar strengthened, USDJPY moved higher, and gold fell sharply at the end of the week.

Markets This Week

U.S. Stocks

The Dow Jones rose slightly in quiet trading last week, with the short-term trend now moving sideways. The increased possibility of higher U.S. interest rates could put pressure on stocks this week, especially if Friday’s employment data is stronger than expected. Short-term traders may find range-trading opportunities ahead of Friday’s jobs report. Medium-term traders could focus on selling into strength if strong employment data increases expectations for higher interest rates. Resistance levels are at 53,500, 54,000, 54,500, 55,000 and 56,000. Support is seen at 52,500, 51,500, 51,000 and 50,000.

Japanese Stocks

The Nikkei 225 tested higher last week but finished close to unchanged in quiet trading. Investors may be cautious about buying this week due to the increased possibility of higher U.S. interest rates and continued high WTI crude oil prices. With the 10-day moving average now pointing lower, focusing on selling opportunities looks like the better strategy this week. Resistance is at 67,500, 69,500, 70,000 and 71,000. Support is at 65,000, 64,000, 63,000 and 62,000.

USD/JPY

USD/JPY was quiet for most of last week, testing slightly higher as markets continued to expect the Bank of Japan to raise interest rates in September. The pair then moved above 160 on Friday after Fed Chairman Warsh showed greater concern about inflation, increasing expectations that U.S. interest rates could also rise in September. With expectations for higher U.S. rates now increasing, USD/JPY could test higher again this week. Friday’s important U.S. employment report will be the main focus and could determine the direction of the pair. Resistance is at 161.00, 162.00, 164.00 and 165.00, while support is at 159.50, 158.50, 158.00, 157.00, 156.00, 155.00 and 154.00.

Gold

Gold’s strong rise came to an end late last week as the increased possibility of higher U.S. interest rates in September triggered a sharp fall. Prices closed below the 10-day moving average after gold had gained more than 15% at one point during August. Gold could recover at the start of this week, but may struggle to move back above the 10-day moving average unless Friday’s U.S. employment data is weaker than expected. Resistance is at $4,650, $4,700, $4,775, $4,900 and $5,000, while support is at $4,450, $4,350, $4,300, $4,225, $4,200, $4,125 and $4,100.

Crude Oil

WTI crude oil moved lower last week as the U.S. appeared more likely to increase economic pressure on Iran rather than take military action. Reports that the U.S. could gain greater access to Venezuelan oil also raised expectations of more supply, with further news over the weekend supporting this view. Oil remains difficult to predict because news can quickly change the market. However, with less risk of military action and the possibility of more oil supply, lower prices look more likely this week. Resistance is at $90, $95 and $100, while support is at $80, $75, $67.50, $65 and $60.

Bitcoin

Bitcoin found resistance above $80,000 last week as traders took profits after the recent strong rise. Buyers remained active, however, with the rising 10-day moving average providing support. A break below the 10-day moving average could signal that the recent upward momentum is weakening and lead to further selling. Traders could therefore look for selling opportunities if Bitcoin moves and stays below the 10-day moving average this week. Resistance is at $80,000, $85,000, $90,000, $95,000 and $100,000, while support is at $75,000, $65,000, $62,000, $60,000, $55,000 and $50,000.

This Week’s Focus

Monday: Japan Industrial Production and Retail Sales, China Manufacturing PMI, E.U. German CPI, U.S. Chicago PMI
Tuesday: Australia S&P Global Manufacturing PMI and Current Account, Japan Capital Spending, U.K. Nationwide HPI and S&P Global Manufacturing PMI, E.U. HCOB Eurozone Manufacturing PMI, CPI and Unemployment Rate, U.S. S&P Global Manufacturing PMI
Wednesday: Australia GDP, U.S. ADP Nonfarm Employment Change and Factory Orders
Thursday: E.U. HCOB Eurozone Services PMI and PPI, U.K. S&P Global Services PMI, U.S. Trade Balance, S&P Global Services PMI and ISM Non-Manufacturing PMI
Friday: Japan Household Spending, U.K. S&P Global Construction PMI, U.S. Nonfarm Payrolls

As markets return from the summer holidays, volatility could start to increase this week. The main focus will be Friday’s U.S. employment report, especially after last month’s unexpectedly weak jobs data. USDJPY will also be closely watched after moving above 160, as traders may again test how the U.S. and Japanese central banks respond to further yen weakness. Last week’s comments from Fed Chairman Warsh showed continued concern about inflation and increased expectations that U.S. interest rates could rise in September, which could continue to support the U.S. dollar.