Analys från DailyFX
What’s Driving the Gold Price Sell-Off, and Can it Continue?
Summary: Record declines in gold have coincided with sell-offs in the Australian Dollar. Yet correlations may be misleading. We look at fundamental drivers and gold price forecasts.
Correlation between the Price of Gold and the Australian Dollar/US Dollar Exchange Rate
Price of Gold (lhs)
Australian Dollar/US Dollar Exchange Rate (rhs)
Correlation between the Price of Gold and the Australian Dollar
Gold prices started the week with the largest single-day decline on record, and most were left wondering what could possibly be driving such remarkable weakness. The short answer is that no one knows the true fundamental reason for gold price tumbles.
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Simultaneous declines in the US SP 500, Dow Jones Industrial Average, and Australian Dollar have nominally driven cross-market correlations to gold substantially higher, but it’s critical to remember that correlation is NOT causality.
The long answer is that tremendous speculative interest below critical support near $1525 likely forced selling from those who remained heavily net-long.
On Thursday we warned that our proprietary Speculative Sentiment Index data showed retail FX traders were far too enthusiastic to buy into gold price weakness, and we warned against catching falling knives. Indeed, we most often use SSI as a contrarian indicator to price action; if most are buying, we prefer to sell.
Our warning on buying into gold price declines remains valid as crowds remain extremely net-long.
Forex Traders Remain Aggressively Net-Long Gold Prices
Our SSI shows that there are currently 1.8 traders long Spot Gold for every one that is short. This is a significant shift from Friday when the same data showed 3.9 traders long per short, but we think that this is not necessarily a substantive shift in sentiment. Rather, many were forced to exit Gold-longs to cover margin requirements in their trading accounts.
It is certainly worth noting that short positions are up 16 percent since yesterday—clearly some are seeing this as an opportunity to sell the breakdown. Yet we’ll need to watch how crowds react in subsequent days to really get a gauge of the next likely move in gold price action.
Our Speculative Sentiment Index on Gold prices appears once per week on DailyFX.com via our Technical Sentiment page. Receive the SSI and other reports via e-mail by signing up for our e-mail distribution list.
Gold SSI is also updated on DailyFX PLUS twice per day. Use your live account credentials or sign up for a free trial for DailyFX PLUS.
Forex Correlations Summary
View forex correlations to the SP 500, SP Volatility Index (VIX), Crude Oil Futures prices, US 2-Year Treasury Yields, and Spot Gold prices.
— Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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David specializes in automated trading strategies. View an outline of the most popular sentiment-based trading signals—including download links—via this DailyFX article on trading systems.
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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