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Gold & Silver in a LT rally

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especially if the indices break! this has been a very very short squeeze last week but it seems to have finalised and petered out. We could be seeing some serious movement once again if earnings are crappy in the US over this week and next.

I certainly would be keeping gold in my sights.

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Agreed @cryptotrader although I suspect Gold/Silver will rally now whatever happens on the stock indices.  There is never a 100% relationship all of the time and Gold can go up at the same time that stocks go up.  I would like to see USD drop in retrace for a while though to seal my confidence in Gold/Silver to rally for a while.

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have you ever bought actual gold? as in going into a store and purchasing that way? I have no idea about it and never looked into it, but there must be an argument for it? I wonder if the commissions are huge?

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Never did it but did look into it once.  The dealer I know about is called Sharps Pixley, UK based respected company.  They actually have a shop on St James St in London I think where you can buy small level items but really they deal in physical bullion as dealer and storage service.  I think a chunk of their storage is in Switzerland, if memory serves.  Check out their website. 

https://www.sharpspixley.com/

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Gold rally phase looks strong, although it has been in consolidation during the recent stocks bear moves, not dissimilar to USD.  Makes me think Gold is not yet acting as a safe haven store of value yet.  I suspect the next move will come thanks to USD price action rather than stocks but regardless of why I still see a strong Bullish set up, albeit short term there may be more consolidation.  Having had a breakout and retest of a potential small scale flag formation (these are relatively weak signals being on short term time horizons) I am looking for a stronger break through of overhead resistance levels to trigger any additions to my Long positions.  Caution is required during any consolidation period as whiplash price action can cause death by 1000 cuts.  However there is good potential here if we can tap it.  The Daily chart medium term prognosis is speculative at this point and therefore only a road map guide but a strong breakout would get this market on the road and then constant revaluation will help manage any trades in play.  Silver set up seems even more Bullish to me.

XAUUSD-Daily_251018.thumb.png.3be66f40154fb7c999cd614ae416c2a5.pngXAUUSD-4-hours_251018.thumb.png.63ae153afb785d7c668dc880a194b772.png

 

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I think both Gold and Silver will be volatile during the next few months. There is a lot of economic uncertainty. The markets are jittery to say the least. 

Decision making in setting effective stop losses for any Gold and Silver trades will be crucial. They must not be so tight that one gets stopped out on the volatility. However they must not be so wide that if the trade goes against you and Gold and Silver do not behave as one thinks then it creates larger losses for you. A difficult one but the stop loss levels will be key.

@Mercury, what would you suggest for stop losses on any long Gold and Silver positions. From a risk management perspective one should not risk more than 1% on any individual trade and around the 5% figure on all open trades. In terms of setting stop losses on the two do you have anything in mind? If one thinks that Gold and Silver are going to seriously rally to the long side on balance of probability then would a more generous stop loss be applied?

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It's a very important point @TrendFollower but very hard to answer because stop setting is all about attitude to the risk/reward ratio.  If the rewards are massive and you can afford the loss in your account then a larger risk might be acceptable BUT only if you have a high probability of success.  How you assess both the probability of success and the stop position is determined by your analysis and trading methodology and so mine is very likely not to be the same as yours.  It would be easier for me to comment (using my methodology) if I knew what you were thinking of doing, both in terms of a trade execution point and stop levels off that.

As for me, I took my long term trades before the market broke out of my Daily tram-line (blue line in the below chart), based on pre-identified turning points.  Such trades are somewhat speculative and can easily breakdown so I always keep my stops close, just under the turning zone and, as you say, exposing me to no more that a set %.  Once the market moved in my favour and I was confident that we would not see a retest of my turning zones (in this case when the blue line triangle was swiftly broken through on 11 Oct) I moved all my stops to break even.  With zero risk (excepting some crazy flash crash) and significant potential upside.  I am sitting on that and waiting for the next stage to begin a pyramiding strategy IF Gold does indeed rally long term.  I have done something similar on Silver.

So let's look at the charts now, I am confident that Gold will rally hard but not confident on when yet.  The first step is done, that break of the Daily Triangle, but we could easily see a retest of the breakout area (1,200 zone) as you have been saying TrendFollower.  This scenario I have road mapped with red arrows (not timeline accurate of course) and in truth we could see a turn at any support zone along that red arrow down.  The alternative is that the short term Flag formation holds and we see a strong rally away near term (blue arrows).  The upper Flag line has had 2 tests already and both were rejected (albeit the first was a so-called "hard" retest, where price actually penetrates but recovers back above the line) but we look to be setting up for a third and who knows whether this will hold again of break through???  Gold has not been rallying hard as stocks dropped, USD has been rallying, which is perhaps one reason Gold is sluggish at present, but what happens next?  What if stocks rally and USD falls? What if the reverse happens?

My approach will be to wait and see which way the short term support goes and follow 1 of my 2 road mapped scenarios accordingly.  I will only add to my positions when I see price action that fits my road maps and typically keep close stops at entry to guard against invalidity of set up.  Any trade I might take around the short term flag will have very close stops because the likelihood of this being invalid is higher.  I would be more confident to let a retest of the 1200 level have a wider stop.  A trade on the breakout of over head resistance (if it is a fast move) would have an average stop distance but if volatile (i.e. during something like US NFP) it might need a wider stop initially.  I would not move to break even on this breakout until I was sure any retests of the support/resistance area were done.

In general terms, many people talk about placing stops below the previous low (or above the previous high) from the point you enter a trade.  Others talk about a set percentage rule.  I have always preferred to go closer as I feel if the market does not turn at my identified turning point my set up is invalid and I must look at the alternative scenarios (or alternative turning points in the same scenario).  This sometime causes me t get stopped out a few times as I attempt to enter but my strategy is to lose small and win big (fewer bigger better). So I don't mind that so long as it does not become a death by 1000 cuts situation.  Again it is very hard to be precise about this because every set up is different.

What are your thoughts?

XAUUSD-4-hours_261018.thumb.png.5ed1cab6c46ecc76e0e14340418f90e2.png

 

 

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@Mercury,

First of all a very informative post. Thank you for spending the time writing your response.

If Gold were to hit or surpass around the $1261 level it would go through its 200 day moving average. This would be extremely positive when considering a long term trade in Gold from a 'Trend Following' perspective.

If one were to enter a long position around this point and had a long term view to participate in a potential Gold rally then one may look at initially using a stop loss around the 100 day moving average figure. Some may wish to use the 50 day moving average figure. This would would allow volatility not to kill the trade too early. It would also allow the trend and price action to dictate when to enter and exit taking 'emotion' out of the decision making. 

Again this method would not be for any short term or day trades on Gold. Also a trailing stop could be used once in profit to ensure that the trade ends up being a winning trade.

Using such a strategy would mean the stop loss would be around the 3% to 5% mark of the initial price one goes long. if they were to go long at around the $1261 mark and the 50 and 100 day moving averages were as now. Obviously this changes as the days go on but gives a rough idea. 

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Sounds right to me @TrendFollower, I don’t use MA much myself.  For me, with the set up I have evolving, a break through resistance ought to be strong and therefore retrace no more than to retest that resistance level.  I am looking more at the 1245 area.  If you wanted to give it more room against a hard retest then I would be looking at the 1225 level of the series of lows and turns.  As a general rule I prefer to cut losses early and seek a re-entry rather than ride out larger losses.  I sleep better at night that way... ?

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So I feel like maybe stocks are turning for another rally (in what form etc not sure yet) and EUR/AUD/GBP look set for a rally (USD DX to fall) but what about precious metals?  Since late Jan/Early Feb Gold has been running in opposition to Stocks (classic inverse), while stocks have been rallying Gold has dropped in a retrace action.  Of note, while stocks dropped Gold did not rally but rather went into consolidation.  So Gold is out of favour. 

What could change that?  Well obviously a major stocks (and bonds) crash could do the trick.  Also a period of USD weakness could help the case for a Gold rally.  Hmm, one out of two is not that encouraging.  If the assertions, above, are proved true then Gold will, in all likelihood consolidate again, maybe with a retest of recent breakout points (circa 1,200 area) before any significant rally gets underway.

I note that Gold experience a bearish pin bar on Friday that suggest the next move will be downward, however the overall candle was in the green so not a completely Bearish set up.  Additionally Silver is currently tracing a small consolidation patter with an inside bar set up, which is indicative or a turning point, however these things can break either way in not in an obvious trend already.  Net, alas we could see both these markets retrace further before a strong rally OR they could breakout into that rally from here.  If the former happens there will be good retrace turns opportunities further down, if the latter happens then we will be looking at trading the break through of overhead resistance.  Anything in between is a high risk trade.  (road map lines on my charts are indicative only)

Trading Strategy:

  • I will hold my existing positions stop protected below the key support zones on Gold and Silver, despite my temptation to swing profits now because there is always a chance of a swift breakout of over head resistance.
  • I will look for consolidation (or especially any retest of key support zones) breakout points to emerge and seek to add to my positions when they present themselves as low risk trades
  • I will seek to trade fast strong breakouts of overhead resistance (this time it may not look back - i.e. no significant retest)

XAUUSD-Daily_261018.thumb.png.fce8cc44562056d55fb978a7e6bef684.pngXAGUSD-Daily_261018.thumb.png.03b01c4f6c5c6d9a5421098492090152.png

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Gold looks to be holding at the Flag support zone but Silver has endured a much sharper decline and is now bouncing off the lower line of a Daily Triangle (blue).  Both could hold here and rally or...  With Stocks retracing back down into Triangles and USD thinking about whether it will rally or drop through it seems like everything is at a critical tipping point.  2 interesting cross market scenarios seem likely candidates:

  1. Stocks rally, USD falls, Gold/Silver rally (or maybe go into consolidation
  2. Stocks and USD drops through support into another Bearish phase and Gold/Silver rallies hard

Interesting times...

My bias is for #1 BTW...

XAUUSD-4-hours_291018.thumb.png.ce024b32bbd6b71803710387abf949a4.pngXAGUSD-Daily_291018.thumb.png.46745708fd67ec487cd40bd612f861e7.pngXAGUSD-1-hour_291018.thumb.png.483a5e714d719ddc1ce0924a5ae8ac48.png

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For me the strength of the trend plays an important part in my decision making when trading commodities and Gold and Silver are not showing enough 'Trend Strength' for me personally at this moment in time.

That may well change going forwards but right now I am on the sidelines and monitoring. 

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Silver has returned to the upper Triangle line of the current consol period.  A break out here and of overhead resistance would be very bullish but a rebound off the Triangle suggests a return to the lower line (as described by the support zone around 1415. The 1 hour chart pin bar isn't that compelling just yet, could easily see a test of overhead resistance, which if it holds would establish a trading range.  Breakouts from long term trading ranges are very compelling.  One to watch.  Also, as the saying goes, "as goes silver so goes gold".

On my Gold 4 hour chart I have been tracking the retrace back towards 1,200.  The turn at Fib 50% was compelling but I couldn't rule out a clearer A-B-C formation and so far that is on the cards with a potential turn at Fib78% of the rally retrace on a pin bar.  If the current move up is a 1-2 then the next leg will be hard down towards the Fib 62% (Triangle breakout zone retest - 1,206) or the Daily Triangle breakout zone of 1,200 exact.  I prefer the latter set up t present.

XAGUSD-Daily_021118.thumb.png.942c3ec9a063befa4b095f1ce15a1a2e.pngXAGUSD-1-hour_021118.thumb.png.55ca8f10b370adb659f30d48d6c621ee.pngXAUUSD-4-hours_021118.thumb.png.fe573213e7dcf2415e5d9800b18d781c.png

 

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Quick update on Silver, The Triangle Line doesn't really work as well as a simple trading range set up.  A break out of this range sets up a strong rally scenario.  At this point I am favouring another run back down to support, coincident with a completion of an A-B-C retrace on Gold USD falling and a rally in stocks.  If this happens that speculative longs with close stops at key turning points on Gold and Silver will be an opportunity.  Failing that a breakout of key overhead resistance on the Daily chart will be a major opportunity.  The only issue I see with a speculative trade at the support level is that this range could carry on for a while yet and the moves between the top and bottom can be very choppy so I will not be trading anything within the ranges, nor shorts from the top as my bias is for a breakout into rally.

Trading strategy:

  • Wait for a hit and turn on support level for a spec Long with close stops and, or
  • Wait for a break through of Resistance if consistent with other markets moves and go Long

Thoughts on the trade anyone?

XAGUSD-Daily_021118.thumb.png.decb187c54addf1553c467656422dd2c.png

 

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My views on Gold look like this:

  • There is compelling NMD on the recent top out at resistance so a bearish phase was indicated
  • Maybe this has completed at the Fib 50%, maybe not as the price action is consistent with an A-B-C retrace and a drop back down to Fib 62% or another test of the LT trend-line, time and price action will tell that tale
  • Can't rule out a breakthrough rally from here

Trading strategy:

  1. Hold previous Longs with suitable stop protection to avoid a stop out and rally
  2. Look for price action turn signals at Fib 62% (Triangle breakout zone) or retest of LT trend-line to go Long
  3. Whatever happens (other than a collapse in Gold) trade Long on a major strength breakout of the over head resistance and begin a long term trend following Long campaign.

Thoughts on the Trading ideas anyone?

XAUUSD-4-hours_021118.thumb.png.44f46b5816b6b8c93ea9e0f0a7d57c77.png

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@Mercury,

Silver is trading below its 100 and 200 day moving averages. So it would take a more aggressive trader to go long using leverage on Silver right now based on it trading above its 20 and 50 day moving averages. There is a risk of a trend reversal so if the stop loss is too right then the volatility could close your position and if it is not tight enough then your losses could be bigger than they need to be. 

I would be personally inclined for Silver to cross its 100 day moving average and seriously head towards its 200 day moving average but what do others think?

I am not a big fan of Gold and Silver and rarely trade them if all in recent years. There would have to be a strong trend in Gold and Silver which had some serious momentum for me to get interesting in Gold and Silver right now.

Edited by TrendFollower

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The Gold/Silver retrace has been steady, after a Fib 76% rally turn, but has gathered pace on both towards the end of the week and both are now approaching important support zones.  Gold in particular is heading for a retest of the 1,200 support zone, which is quite obvious on the Daily chart and coincident with the breakout of the previous daily chart bearish trend channel breakout.  On the 4 hourly (and hourly) chart this zone can be seen zoomed in.  It also coincides with the apex of the 4 hourly Triangle and the Fib 50% of the whole rally up from the 16 Aug pin bar turn.  So the 1200 area is the lead candidate for this current bearish move to terminate but there is also a chance that the market moved down to retest the LT support trend-line, which is also at the Fib 62% (1190).  There are 2 other turn zones below but I will look at that after I see how the first two do.  Additionally Silver is at an important support zone so for Gold to drop to the lower zones Silver would probably have to break the 11 Sept low and if that happens all bets are off...

XAUUSD-Daily_101118.thumb.png.98b783f4eadc7fd7e51112f4de468013.pngXAUUSD-4-hours_101118.thumb.png.7a7d9a7fe78e3c03d56af63935c1489a.png

 

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I have included the chart (below) which highlights the 'Volume' and 'Volume Weighted Moving Average'.  

1900093285_SpotGold_20181110_23_45.thumb.png.6a1864fdf027186ebf1f3b7849e07092.png

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Silver is at an interesting juncture that will surely tell the tale of precious metals, "as goes Silver, so goes Gold".

As suggested previously, Silver seems to be in a trading range consolidation phase.  The point here is not to trade within the range (strictly for day traders that and very precarious on a market like Silver).  The point is to trade the consolidation breakout, always being mindful of false breakouts.

To recap, my Fundamentals assessment is that precious metals are due a rally after a significant bearish retracement off the commodities high of 2011 (Gold made it to the Fib 50% - significant for Gold but Silver put in a touch on the Fib 78%).  Both of these retraces were halted around the LT support trend-line and rallied away into a EW1-2 and then a smaller 1-2 in the case of Gold.  Stocks are under pressure, flight to safety will be to the traditional places: USD, Gold, Silver (possible Yen but not so much I think).

Silver has now retraced to potential double bottom with the last major bottom (my purple 2 - Daily chart @ 1,390 ).  A break below this would call a rally into question.  A break below the 2015 low at 1365 would be bearish.  Because my big picture Fundamentals and analytics are bullish my bias is that Silver will not break low.  Stocks are turning and may have topped out.  USD is rallying, although I can see a short term drop on USD, which would also help push precious metals into a rally (at least short term).

On the hourly chart I have a potential ending Triangle formation into the wave 2 retrace turning zone the second part of the potential double bottom).  The move down confirms to an A-B-C retrace pattern.  There is a small gap on last nights close and reopen, which likely needs to be closed before a rally.  Key point to consider a Long would be the breakout from the Triangle.  I have PMD on last nights close but am wary of a breach of the previous low 1390 as this would give pause for reassessment.  I have stops just below the previous lows.

XAGUSD-Daily_131118.thumb.png.325499c2697f351d8f28d975122e78b7.pngXAGUSD-1-hour_131118.thumb.png.3627f36edd0b2970e4f7898e89cd8986.png

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Gold breakout into a rally from Daily channel breakout retest & support zone.  If this is sustained then it supports a stocks Bear.

XAUUSD-4-hours_141118.thumb.png.3037c79d47e34c9b329c38d4959f5b26.png

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Silver makes a fresh low beating the 10 Sept low and then immediately rallies out through a short term ending diagonal channel.  I would expect a small 1-2 retest of the channel prior to any major rally but aligned to the strong Gold breakout from support consolidation the odds are good for a strong rally in Silver.

XAGUSD-1-hour_141118.thumb.png.2de8de4497478ca08547cd42be84778e.png

 

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Mentioned Silver just now in the context of USD.  Precious metals seem to be following USD at present and regardless of that the technicals are suggesting a retrace prior to a more significant rally.  Same but smaller on Gold I think.

If we do get this retrace and a bounce at a good support zone and then a fresh higher high this could be a nice Long trade.  A retest of the breakout zone would offer a close stop (low loss potential) Long IF the nature of the price action is consistent with a retrace and not a plunge lower.  Ideally you want to see the bounce first but it could run fast.  May take a while for this to mature, patience is required.

 

XAGUSD-1-hour_161118.thumb.png.accf0e5ee9fdfe1279ed1996d863bdc9.png

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Hi all - just wanted to drop this in as it seems contextual to the conversation. Any questions or comments feel free to add them to the post :) 

 

 

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Very interesting indeed @Caseynotes.  I was at a talk on Gold a few years back when a fund manager, who was pro gold, suggested that the following 3 things needed to be the case for a Bull run in gold:

  1. Interest rate back drop unsettling - tick
  2. Gold rising in all major currencies - is in USD but not sure about others...
  3. Beating the Stock market (SP500) - maybe about to be tick?

 

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Of note may be that this month we have seen a bounce of a LT supporting trend-line on the Monthly chart.  The 4 hourly chart shows the recent bounce after an A-B-C retrace to retest a Daily chart channel breakout support zone.  I do expect to see another smaller bearish retrace move before the Bull rally gets going.

Similar but more extreme set up on Silver.  For me, if one were a it nervous yet about shorting stocks then going Long Gold at a suitable retrace level could be a descent way to play it.

XAUUSD-Monthly_201118.thumb.png.f5e17d9d15943dd48269f2d26c6f8c8a.pngXAUUSD-4-hours_201118.thumb.png.c93c06973c676fe24ac0bf523afd3a17.pngXAGUSD-1-hour_201118.thumb.png.08048ce7ccbefcb7709f44a3bc50a8dd.png

 

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Adding to your returns comparison chart @Caseynotes the following 2 historic Gold related charts are quite interesting.  Firstly, it is easy to think the 2011 Gold high was all time but it wasn't if you consider an inflation adjusted price chart.  Note also that from 1920 to 1934 gold appreciated almost 3X.  If we saw the same again the price (excluding inflation adjustment - but there might not be any if we are in a depression...) would be $3,600...  1920 is significant as there was a depression, known as "the forgotten depression" in 1921, which was overshadowed by the 1929 one of course.  It is not entirely clear to me what drove the 1970s rally in gold, before my time, but I do remember there was a global oil crisis in the 70s and a lot of geopolitical tensions plus we had Bretton Woods in the late 70s.  Let's say it was not that good a time economically when compared to the roaring 80s...

The second chart is a ratio of SP500 to Gold prices.  I am not a huge fan of technical analysis on ratios charts, preferring primary charts, but some interesting observations on this one as follows:

  • 1933: end of depression (or beginning of it anyway from a financial markets perspective).  Gold high but turns lower vs SP
  • 1940: WW2 Obvs! Gold high.
  • Early 70s, oil crisis, middle east and other geopolitical unrest, nuclear "duck & cover" fears etc etc drives gold prices up to 1980
  • 1980 coincides with the inflation adjusted all time high for Gold and stocks hadn't got going into the post Bretton Woods (i.e. debt fueled) Bull.  Gold high SP low.
  • Then Gold falls out of favour until 2001, dotcom bubble bursts.  and gold begins it rampaging Bull phase, aligned to many major commodities up to 2011 peak (you see that on a standard Gold chart).
  • In terms of a range on the ration chart however the 2011 peak did not coincide with the historic bottom of the ratio range.  Could it be that it hasn't finished its periodic/cyclical journey?
  • From a technical analysis perspective the ratio charts do conform to Elliot Wave theory (again not a big fan but ok).  The wave down is a 1-5 and so far the wave up can be seen as an A-B-C.  From a chartist perspective this current wave up can be seen as a pennant (i.e. at half way) and there seems to be a resistance zone around 2.5-3.0, which is where we are now.  I can't draw a fib but visually looks about a normal retrace level, over 50%)
  • Ok gotta take the technicals with a pinch of salt but still it stacks with my fundamentals picture of Stocks crash, Gold rally.  This is the only thing that would complete the cycle on the ratios chart, unless this time it really is different...

One thing I firmly believe, you cannot break the normal cycles, even though Gordon Brown declared he and Tony B did...  Cycles occur int he natural world.  Humans existing and are part of the natural world (even though we like to think of ourselves as apart of it and of a "higher" standing we are not).  Humans respond to natural cycles without thinking about it (it is sub conscious, instinctive - likes bird heading south for the winter or squirrels storing nuts).  This is why cycles are inexorable, in fact in terms of economic cycles we do it to ourselves and we call it human nature but actual it is just nature.

And (I'm about to turn some if not many of you off now but ok separate this point from the above and just for fun!) that is why Fibonacci retraces work!

Charts courtesy of macrotrends.net

https://www.macrotrends.net/

historical-gold-prices-100-year-chart-2018-11-21-macrotrends.thumb.png.ce4c51f6c4c350e3746e53775954eeb2.pngsp500-to-gold-ratio-chart-2018-11-21-macrotrends.thumb.png.3270df9293bc584710af32a817e0cc47.png

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