Metals cool down a FOMO-rally halts

This week in the financial markets has been quiet across the board. The market regime has changed for most assets to a low-volatile rotational price action with limited volaitlity. The Lunar New Year in China and absence of macroeconomic triggers lowers down the volume across the board and puts markets in a “wait-and-see” mode.

Volumes for Gold and silver, for example, have reached the bottom for the year. At the same time, Commitment of traders reports for gold futures on CME have reached another peak, which might be interpreted as a bullish signal, but rather for a medium-term than short-term perspective.

From a seasonal studies perspective, Gold still has capacity to grow in the first quarter, but closer to March, metals groups usually show a decline of the momentum. That is not a guarantee, of course, and the real dynamics may differ from statistical studies, but the current price action and volume distribution confirm the cooling sentiment for metals, which still fit into the rising overall trend.

Though the main intrigue within this week was not linked with economic publications. The revival of tensions between the US and Iran are in focus this week. The US has been rapidly building up its military presence in the Middle East — two aircraft carriers, fighter jets, refueling tankers — effectively positioning itself for a potential large-scale strike on Iran. This has given Trump a credible military option while increasing pressure on Tehran to reach a deal on its nuclear program.

That had boosted Crude oil futures, even though the reaction of Gold was limited. At the same, the buying flow in Gold exists, though in not a FOMO-type regime.

FOMC minutes on Wednesday have rather sent a hawkish message, cementing expectations about interest rates kept at the same level through the Fed’s decisions. That doesn’t bring anything particularly new to the picture, as yields of 30-year bonds of the US still keep on the low base, pressured by purchases of bonds of the FED and increasing balance sheet.

Now let’s dive deeper into the price action and try to assess possible scenarios for Gold and US dollar.

XAUUSD

Gold is slowly recovering from the dynamic support zone: the area between 20 and 50 day moving averages. The buying flow is quite slow but steady, as the market is looking for a geopolitical hedge against the US-Iran possible escalation.

It’s likely to move in a stair-stepping trend with sporadic bullish moves and lengthier consolidations, rather than to develop a strong bullish rally.

The achievement of 5100 target seems likely in the 1-3 days perspective, after which, 5200 may be reached within the 1-2 weeks perspective, as shown on the chart.

EURUSD

Euro moves down against the US dollar, driven by hawkish sentiment shift from the FED, and overall reversal of the “sell America” narrative. Though, the capital flows to the US dollar are not yet supported by the bond markets, as they display declining yields as bonds show the increasing interest from investors.

From a technical perspective, the swing moves down for 8 days, and has a pretty high probability of a short-term continuation, though the lower band of the Bollinger Bands indicator usually serves as a potentially strong support level.

Given the perspective, we might expect EURUSD to slide down to 1.16 area, after which it may find a responsive buying pressure.