Solid Goold Trading

Monday’s Edition

With Nick Goold

Financial markets had a volatile week, especially stock markets. Tuesday’s U.S. midterm elections saw Democrats win control of both chambers of Congress, helping stocks rise at first. However, stocks fell sharply the next day as investors became worried about AI spending and whether Democratic policies could slow investment in the sector. U.S. employment data was stronger than expected, with 165,000 new jobs compared with forecasts of 65,000.

U.S. bond yields fell after the Democratic election victory, as investors expected less government spending. Falling stock markets also increased demand for safer investments, pushing yields lower. Gold recovered toward $4,000 as yields fell. WTI crude oil dropped more than 10% as the election result increased pressure to end the war with Iran and reduce rising living costs.

The Bank of England raised interest rates by 0.25 percentage points to 4.0% to help control inflation. In Japan, the Nikkei 225 fell sharply as AI-related stocks continued to lose some of their earlier gains. Investors remained worried about high technology stock prices and whether large AI investments would produce enough profits.

Markets This Week

U.S. Stocks

After a highly volatile week, the Dow held up relatively well, remaining above its September and October lows. With a December interest rate hike already priced in, the Dow may rebound at the start of the week. However, gains could be limited by resistance around the 10-day moving average and the 52,000 level. Resistance is at 53,000, 53,750, 54,000 and 54,500. Support is seen at 51,000, 50,000 and 49,000.

Japanese Stocks

The Nikkei had a very poor week as concerns about AI and technology stocks triggered aggressive selling following the U.S. midterm elections. However, the market now appears heavily oversold, increasing the likelihood of a recovery at the start of the new week. A rebound above 60,000 could help stabilize sentiment and lead to sideways trading as investors assess the next market direction. Resistance is at 60,000, 60,500, 62,000, 63,000 and 64,000. Support is at 56,500, 55,000, 53,000, 51,000 and 50,000.

USD/JPY

USD/JPY continued to move above and below 158 last week. Stronger-than-expected U.S. jobs data helped prices finish the week near the top of the recent range. The Japanese government continues to warn that it may step in if the yen weakens further, but traders seem willing to test these warnings. USD/JPY is starting to move higher and could reach 159. However, it may be better to wait for prices to fall before buying rather than buy after a strong rise. Resistance is at 158.75, 159.00, 160.00 and 161.00 while support is at 157.00, 156.00, 155.00, 153.00, 152.50 and 152.00.

Gold

Gold recovered above the $4,000 level following the U.S. midterm elections, supported by falling long-term U.S. bond yields as investors anticipated less pressure on government finances. However, the recovery has been rapid, suggesting that further gains could be limited in the short term. Sideways trading above the $4,000 level appears more likely this week as the market consolidates its recent rebound. Resistance is at $4,100, $4,150, $4,220, $4,250 and $4,300, while support is at $4,000, $3.975, $3,900, $3,875 and $3,800.

Crude Oil

Heavy Republican losses in the U.S. midterm elections highlighted growing public opposition to the war in Iran. The increased possibility of the U.S. seeking a quick end to the conflict triggered aggressive selling in WTI crude oil, before prices found support near October’s lows. However, ending the conflict quickly could still prove difficult. Buying opportunities may emerge if prices hold above $88, with resistance around $95. Resistance is at $95, $100, $105, $110 and $115, while support is at $880, $85, $80, $75, and $67.50.

Bitcoin

Bitcoin rose quickly with U.S. stocks after the midterm elections but ended the week lower as technology stocks fell sharply. Prices are holding above support at $75,000, but the short-term trend remains weak. Selling when prices rise toward the 10-day moving average or fall below $74,000 could be the better strategy this week. Resistance is at $80,000, $85,000, $88,000, $90,000 and $95,000, while support is at $75,000, $65,000, $62,000, $60,000, $55,000 and $50,000.

This Week’s Focus

Monday: Australia Building Approvals, China CPI and PPI
Tuesday: Japan Household Spending and Current Account, China Trade Balance, Australia NAB Business Confidence, U.S. CPI
Wednesday: E.U. German CPI
Thursday: U.K. GDP, Industrial Production and Trade Balance, E.U. ECB Economic Bulletin, U.S. Existing Home Sales
Friday: E.U. GDP, U.S. PPI

U.S. inflation data is likely to be the biggest event for financial markets this week, as traders increasingly expect the Federal Reserve to raise interest rates at its next meeting. A higher-than-expected inflation reading could increase expectations of a rate hike and lead to greater market volatility. WTI crude oil prices could also see large movements as negotiations continue in the Middle East, with the U.S. pushing for a quick end to the conflict.