Supply And Demand Weekly Forex Forecast including Gold and S&P 500

Hi, my name is Leon Ro, currency trader and trading coach at trading180.com and welcome to this week's supply and demand forex, gold and S&P fundamental and technical analysis for the week ahead starting the 6th of September. Hope you're all doing well and had a great trading week. So getting into um this week's week ahead and this is from tradingeconeconomics.com and they say that signs of tanker traffic through the Persian Gulf will be monitored after the outbreak of strikes between Iran and the US prolonging the shock to energy supply from the region. The US will publish consumer and producer inflation rates, the last major release before the Federal Reserve's September decision. Other key data includes Michigan consumer sentiment and existing home sales in Canada. CA um sorry in turn Canada will publish uh inflation rates. Meanwhile, the ECB will decide on interest rates. Germany will unveil industrial production and the UK will release monthly GDP data. Also, Japan is set to post its PPI, current account and wage aggregates. So uh uh few market moving uh events going on this week. So looking at overall uh risk sentiment looking at the VIX S&P gold uh US Treasury 2-year yields and uh oil uh we can see that really the VIX uh is is is down is quite low. When we uh look at in terms of you know volatility and risk sentiment right we're definitely well below the uh the 20. 20 is seen as a bit of a line in the sand between risk on and risk off. So below uh the 20 around 14 is seen as really more uh where the market um is interpreted to really be focused on yield return. Right? So rate differentials uh carry trades etc. Right? So high interest rates um versus lower interest rates and you buy the higher and sell the lower. So um so yeah that's really where we are um right now. Um and that's really backed up by when we look at the S&P S&P is a risk is seen as a risk on asset. So uh we're seeing um from really uh July actually matter fact let me just go over the last month or so. So yeah last month we kind of moved sideways um but when we kind of zoom out a little bit over the last 3 months we are still really at these uh these highs the uh 72 7 sorry 7 77 um uh uh mark. So yeah, we're close to these uh all-time highs still uh which would indicate more of a risk on environment. Looking at uh gold over the last uh month and we see uh that gold has kind of pulled back since uh since August, right? And uh that's really kind of based on uh really kind of Treasury yields and uh the Federal Reserve expectation and the markets expectation of the Federal Reserve rate hikes. We did uh see this move uh over the last from maybe uh July to um to maybe mid August based on um the fact that the market was pricing out rate hikes for the uh for the for the US. But we've seen the opposite happen uh over the last uh week or two where Treasury yields have have risen. We've seen some data really kind of supporting uh the possibility and probability of um maybe a rate hike uh this year. So really gold reacting uh to um inversely to the dollar and treasury yields and oil also as well. We've seen this uh this uptrend all the way up to nearly $100 a barrel. And this is really uh based on again the uh supply demand dynamic in the Middle East. And this really is uh should be watched gold I'm sorry uh oil should be watched based on um because obviously effect on uh inflation right higher oil prices means higher energy uh prices uh therefore inflation uh is likely to rise therefore central banks are likely to hike rates and then again just looking around the markets though uh in terms of looking at themes and uh uh the main headlines lines don't really seem to be um you know supporting any kind of risk off sentiment right so you got Russia Ukraine exchange strikes uh prices tra traders flock to uh bullish Chinese stocks Australia spring property season begins that's not really uh um any kind of risk off or the anything for the markets to be kind of really worried about and then we've sadly got you know flood destroyed China Nepal border um it says no sign of once busy ports Chinese national rescue from Nepal families missing pilgrims. Um uh so yeah, it doesn't really seem that there's really the market is focused on um on any kind of major riskoff sentiment. Therefore, when we're looking really at the market uh we're looking really focused on uh interest rate divergences. So it says here that the Fed uh on the 16th of September that the probability at the moment it says that they're um looking at around 47 about 50/50% 50/50 probability of a rate hike. Uh ECB I actually might be a little higher matter of fact after the um the recent jobs data. Uh but we'll read about that in a sec. ECB it looks like 100% hike has been priced in. Bank of England uh pretty much a 90% chance of a hold and the Bank of Japan a 75% chance of a hike. And so when we look at uh you know the charts and going into a little bit more in depth the macros the dollar index equally weighted dollar index uh we saw a pullback last week last couple of weeks um um into mid to late uh August and then um we did get a bounce back. I was saying that we could possibly see a bit of a sell here in last week's video and um but the dollar overall does look like that there's the potential for a buy. Now it says here the uh US adds 162,000 jobs topping all estimates in broad advance. US jobs growth surged in August and the unemployment rate held steady suggesting the labor market has more momentum than previously thought. non-parm farm payrolls increased 162,000 last month and the unemployment rate remained at 4.1% with the August increase topping all estimates in a Bloomberg survey. The report indicates the labor market is powering through uncertainty from the Iran war and pressure from inflation which may bolster the argument for raising interest rates which typically is uh is is um supportive for a currency should appreciate the currency. There is though the confirmation I guess which is to do with actually inflation. Uh and it says here Fed rate decision still hangs on inflation after jobs report. So that's the kind of final piece in the puzzle. It says here a surprise jump in US hiring last month has bolstered the case for Federal Reserve to raise interest rates when they meet later this month. But hike a hike is still not guaranteed. The latest report didn't suggest the labor market is adding to price pressures and analysts continue to expect the Fed to uh next Fed rate decision to hinge on inflation data due next week or this week. Uh the probability um investors assigned to a rate increase this month jumped to just above 60% from about 50%. So yeah, this is uh slightly uh slightly lagged a little bit, right? Um but the but the point is is that we've got um uh the the Fed are looking or the market is looking to price in uh some rate hikes if the inflation report is supportive of that right so inflation has to has to rise. So um if that is the case then I think this week and looking at the technicals the dollar overall in terms of uh weakness or strength or devaluation and appreciation uh against the euro the pound the yen the CAD the Australian dollar New Zealand dollar and the Swiss frank um is does look like a little bit of a bargain if of course they do start to hike rates so you know the mantra buy low sell high uh if you're anticipating inflation uh rising then actually now uh or this week uh at some point would be a decent week to look to buy. So um not saying obviously to buy now, not financial advice, but um I would prefer if prices maybe moved a little bit lower before uh prices eventually moved higher. No one knows what's what's going to happen. This week is going to be a week of probably positioning. We could see, you know, volatility, you know, prices move higher, a little lower, right? as as traders and investors um start to you know look to get the best prices and position themselves for either long or short positions and then um once data comes out we'll decide uh whether uh price will decide whether you know prices go up or down right now if uh inflation data does come out and it is disappointing and doesn't really support rate hikes then of course you're likely to see the dollar actually break through this uh this demand zone here right so uh value is determined really by uh by the fundamentals. So not not whether you see uh technicals uh on a price chart. So, um I would lean towards buying at the moment the dollar um even if even if [snorts] prices do move to the downside after the non-farm I'm sorry the inflation report I still think due to the high carry in terms of the higher interest rate um I do think that the dollar is a buy maybe not against um you know a lot of uh currencies but for example something like the Swiss Frank or maybe even the pound um and maybe currencies that are not looking to hike rates like the Canadian dollar, uh I would then say uh that the p uh the sorry the dollar has a um uh can still be a buy. But against something like the euro or the Australian dollar or even the New Zealand dollar, right, I think uh the the dollar is definitely going to struggle. So uh yeah, that's where we are with the dollar. I I reckon uh you can look for uh position for buys. But if the um the data doesn't support rate hikes, then I would probably immediately look for uh I say immediately, but I'd look to get out of that trade if I am in a trade and then maybe look for buys maybe a little lower. Some traders may look for sells, that's fine as well, but I would look for maybe buys a little lower because I don't think it's uh you know, it's it's uh they're not looking to cut rates, right? They're not looking to devalue their currency. It's just the market repricing a little lower. So looking at the euro and the euro I think um uh should be again a little bit more on a buy side. Uh a rate uh hike has really been priced into the market already. So it's really about the forward guidance on what the ECB kind of say uh after they kind of hike rates. It says here economists will see final ACB hike next week in split with markets. So you've got economists saying that um they think that the ECB will likely hold rates and the market are looking at more uh more hikes uh after um this uh this this hike. So economists think the European Central Bank will raise interest rates next week but not beyond uh that a far more doubbish outcome than markets are currently betting on. The overwhelming majority of respondents in the Bloomberg survey expect the deposit rate to be raised by a quarter point to 2.5% on Thursday and stay there through 2027. The ECB challenge ECB's challenge is calibrating the monetary policy. Sorry, incalibrating monetary policy is highlighted by renewed fighting in the Middle East jolt jolting energy markets again with oil prices heading back towards $100 a barrel and natural gas surging. Right. And that's really I think the key as to why they are likely to continue hiking. Um again we do have a headline here as well Europe and Europe UK bond selloff continues as gas prices climb. So um I think overall that um as long as energy prices continue to remain um elevated I think the ECB will have no choice to fight inflation um by uh hiking rates. So even if prices move to the downside this week, I do think that we should see a bit more of a move to the upside. But again, the caveat is that it depends on whether they're hawkish or dobbish cuz they we could have a uh a dobbish hike, right? And there's such thing as a hawkish hold, right? Or even a hawkish cut. So um so yeah, I do think overall though that with inflation, energy prices and again another nuance to this is that the um the economy is doing well, right? or doing better than expected. So that can support rate hikes. Therefore, I think overall the euro should be more supported I think. So any pullbacks from now um you know if you're looking for a buy now and you you agree with the analysis of course then you can look for for for buyers now or maybe a little bit deeper if you think prices are going to pull back a little bit uh before the event. Um if not you can wait until the event and see uh how the dust settles uh depending on your approach. Uh looking at the uh the pound now the pound I did was short on the pound as you guys know from last week. Uh the pound yen trade that I was short on worked out really really well. And I'll go over that uh when I get to the end of this video and you can go over last week's video as far as the setup and uh and uh see um how probably it did. But uh the pound I think is going to be little bit more of a sell than a buy, right? It's a buy based on the fact that it's still got high carry. If we look at um the the VIX uh cuz the VIX is on on the lower side. Um you know, it supports a higher uh interest rate um uh carry advantage. But uh one of the things I think is going to weigh on the um on the pound is you know surging or surging UK borrowing costs halves labor fiscal headroom. So, as we get to the new um government or new government leader Andy Burnham, his um he's going to release a budget in October and um at the [snorts] moment he's being hamstrung by um the borrowing costs, right? Uh the guilt normally like the the the long end uh guilts, which is like the 30-year. It says here, "UK Prime Minister Andy Bernham faces a 12 billion pound problem due to the global sell-off in government bonds, which has surged guilt yields to the highest level in decades. The higher borrowing costs will knock about 12 billion off. The government's 23.6 6 billion um pound buffer against its fiscal rules according to Bloomberg economics and chancellor of the extector John Healey will present his first budget on October 28th and analysts say that he may have to cut government spending or and or raise taxes to restore headroom and maintain fiscal credibility. Right. And that's really the key. It's about fiscal credibility and um and how the government is really going to run the country. If the bond market, you know, haven't really got faith in um in the government and government new government policies and spending and borrowing, then of course the uh yields, 30-year yields, the longer end yields are likely to go higher, uh making things worse for the government because they want more of a premium for borrowing because they see the UK as being more risky, right? And so that overall would end up um hurting the uh the pound. So uh we should see more pound downside. And then in the short term though, who knows? I think there's probably likely to be um it could be a bit more of a pullback. As I said, uh it doesn't necessarily mean that it's going to happen now, but I think any pullbacks into um a level into a supply zone, a resistance zone should be seen or I'm going to see it as uh as a selling opportunity. Now, is the pound a sell against every currency? Absolutely not. It can be still be a buy against lower yielding currencies in the short term like for example the Swiss Frank. Um but I think overall um the pound against something like the uh other currencies like the euro and even the dollar depending again of whether the dollar's um and the Fed hawkish this week uh is likely to be a uh likely to be a sell. And then we've got the Japanese yen. Uh this week I was saying uh again last week that there was likely to be um at least uh maybe a bit of a bounce right coming in. Um and of course uh say of course but it did happen um this week. uh there was uh you know just signs um basically for uh the yen to uh to strengthen a bit and it says here that the yen gains after BJ Hawk leaves door open for outsized hike and the year the yen strengthened against the dollar after bank of Japan board member uh uh Takata left the door open for an outsiz interest rate increase as well as backto back hikes uh which is which is very hawkish. Takata said a 25 basis point hike is not necessarily set in stone and that back-to-back hikes would would be a possibility. The yen gained as much as.5% um uh against the dollar but strategists believe it remain under selling pressure over the longer term uh due to rising global energy prices. So doesn't mean that the you know global energy prices unfortunately will uh hurt the um the yen and the Japanese economy because the Japanese economy kind of imports a lot of its energy costs. So that is likely to have higher uh prices and inflation is likely to have an effect on businesses and and and um you know so uh higher inflation although yes is kind of hawkish for a currency and can be but if it's seen as uh contracting economy then of course we have a stagflation problem which is uh can be and is usually typically is uh bearish for a currency right devalues the currency but in short term. I think with uh you know this kind of buy the rumor um um um you know sell the facts uh getting ahead of this uh really the yen was a buy hence the reason why I went uh uh long on the yen versus the uh versus the pound and also as well versus the Canadian dollar um uh last week. So I'll get into that trade as well. But if you are looking to continue buying the uh the yen, I would probably wait for prices to pull back into some sort of uh uh resistance turn support zone, whether it's there, you know, or there or even back down to uh to here. But uh yeah, I think the the path for these resistance should continue to be to the upside for now. Um but with the end, you just never really truly know, right? Um sometimes I guess you know you had this move to the upside then we pulled all the way back down for about a good two three weeks right everyone was like what's going on um and then we had this uh move up so we could see the same thing could see the same thing uh but I would still look for more buys as long as uh a the data supports buys and the narrative and the sentiment is more on the hawkish side for the yen the minute it turns a bit sour then the yen is likely to be a bit on the uh on the sell side. So, just as a recap, I think the dollar this week is I'm leaning towards a buy. Um, especially now, you can position for a long, but I think that um the CPI data would have to confirm that. If it doesn't, then of course, uh, you just get out of the trade um, if you are long and then wait for maybe lower prices. Um, or you could look for a sell. Uh, but if it supports, then of course, you know, buying now would would look like a a great move. uh the the euro um I think will be affected by the dollar uh dollar pricing but also the dollar is just uh a buy maybe not against the dollar um if the if the Fed are looking to hike rates but against other currencies that are not uh looking to hike rates anytime soon uh the pound again is standing pat on rate hikes for now if that does increase by the way that could be uh supportive another supportive factor for the pound uh but heading into the budget I think any pullbacks should be probably shorted um in my opinion and the yen should be a bit more of a buy uh in the short term as long as uh there is still a hish bias for it. So looking at the euro dollar um euro dollar again um I would say two decent currencies, two strong currencies, you should probably see more of a a ranging market, right? A sideways moving market or what I refer to as an auction. um it's difficult for the the market to kind of determine a direction until we have a clear divergence which at the moment there isn't. So we could see uh you know the 115 uh or current price, current demand zone as really the the floor. We could see maybe a little lower but I would probably see something like this until uh we get a clear direction on which currency is the stronger or the weaker. So you can look for a buy if uh prices pull back, right? Especially down to maybe a fresher area of demand. And if you are looking for a sell and anticipating of maybe a stronger uh dollar against the uh the euro, then you're looking at a pullback up into this zone to look for a short trade. uh the dollar yen uh with the yen obviously strengthening uh you know this opportunity was um was around uh but I think now we start to develop these supply zones cuz we didn't really have one before and now we definitely have some strong supply around this 160 area. So if you are looking for a short trade then you can look for a you can look for price to kind of move back up to here before looking for a short trade or if you really wanted to uh you could uh just wait for lower highs lower lows to be made. So if prices make lower lows break below that 155 level then wait for a pull back up into a supply zone before looking for a short trade. If you're looking for a buy on the uh on the dollar I think now is going to be a decent time. Although this level's been touched probably once, twice, three times. So, uh it's pretty on the on the weaker side. I would say I would prefer maybe even more of a stop hunt before looking for a long trade. If price is stop hunt um and you want to be a long get long on this, then brilliant. Excellent. That's that would be the trade. Uh but I'm not really interested in this in trading this pair. It's a little bit difficult to read fundamentally. Uh pound dollar a little easier at the moment. I would say the pound should be the weaker out of the two. Um, so any pullbacks into supply zones should be seen as more sells, right? So you're looking for a sell there or a sell somewhere around uh these highs. And again, as long as uh the Fed remain hish, then that should be really the play uh on the Euro pound. Again, the euro should be uh the um the buy at the moment with everything that we know. So any pullbacks into a decent zone would be a nice buy. I think there's an decent area of support and resistance right there. So you got a bit of support, bit of resistance, bit support there. So pull back into the 8 uh 0.8550s or just below would be decent for a potential buy. Technically the Euro yen again we had this massive drop and um I do think that the euro is is is is definitely more of a say well I say definitely a buy more on the buy side but um against the yen again a bit more difficult so I'm not really interested in this pair um but if you are technically and you want to look for a buy you think there's going to be weakness for the um for the yen and strength for the euro then of course now should be a decent time to look for a buy trade. And if you're looking for a sell trade, any prices that come up to somewhere around here should be looked at as a selling opportunity. And then you've got the uh pound yen, which um uh for me I think we'll probably continue to see I think should continue to move to the downside. Of course, you know, prices pull back eventually, who knows? But any pullbacks into a level I think should be uh should be sold. If prices all the way back up there or if they make lower highs, lower lows, right? If prices end up going lower, right, and then pulling back to a supply zone, then I'll look for a sell. So either way, um my bias is to sell and then just look for short setups. uh when it comes to the metals and uh gold uh we did have a move uh bounce um here on Wednesday, but with I think if you're looking to buy the dollar, then of course you're looking for sells on the on the uh on gold at the moment. There's really no uh major setup. You have to wait for prices to kind of move drift all the way back up here. if it does this week into you know CPI data and then we get good CPI data or higher C I say good but higher CPI data that supports a rate hike then gold should be a sell around here um or the opposite is true right if prices drift to the downside and then CPI data comes out and it's coming in you know comes in low where the Fed are likely to um to uh hold rates then all the hikes are likely to be priced out of the market and we should see a move to the upside. And the S&P S&P works in the same way as gold um you know uh the S&P um if you're seeing rate hikes um then normally what you would expect is for really the market to move to like the downside with in a rate hike environment in a rate hold and normally a rate cut environment you should see the S&P moving to the upside. So um I would expect uh the uh any upside to be capped for now while the market is um pricing in rate hikes. So you can look for probably a sell right now. There was a sell opportunity here. I was saying last week uh and then prices have kind of returned back to here. So you can look for a short trade. But if prices move down here uh this week and then we see uh a a [snorts] um the CPI data support rate holds rather than rate hikes, then I think you're going to see uh the S&P uh move to the upside. Of course, this is all uh determined on the fact that there's going to be no risk sentiment and again the VIX remains below the 20 and there's no new risk off um events. Now, looking at uh trade updates, my trade update from last week, so the uh the pound yen managed to work out uh quite nicely. So, I only managed to get in on two positions, right? So, I explained this trade uh trade last week, but I'll do it again this week. Uh so this was a a zone right not necessarily a conventional zone something that I uh show uh really on my on my channel but in terms of discounts this is seen as a 80% discount so uh discount zone so from that uh you got lower highs lower lows right so you got a low a high and then you got a low right so for me this is where supply was and so when we if if we're looking at that as being um you know absolute um an absolute sell in terms of a premium price. Any pullbacks, we're looking at discounts, right? So that's going to be a 50% discount. Um and then we got 80% discounts. And so um rather than waiting for prices to come back up into maybe a traditional supply zone, which is where I draw them here. Um I'm just looking at overall discounts, right? Cuz prices may not get up that high, which it didn't, right? So I was right for uh taking this this area here. And so, um, once prices came into this 80% discount zone, that's where I was looking for a sell. And again, you can see last week's, um, uh, you know, trade and where I entered and where my stop was. And so, managed to get in on two positions. Unfortunately, price didn't pull back as much as I wanted it to to get in on maybe three or four positions. managed to take uh a one to one off on the um on that pullback there which is around um around 25% right 25% discounts and then hit a one to one of course as you can see here then managed to just hold this trade right all the way down to uh my final target which was around the uh 80% here um I did initially take off um around 80% off of that position which was about 5.22 22 to1. But then I thought, you know what, let me just close this uh this trade. I think prices have moved far enough. You've got some unfair auctions in here as well, which could be, you know, likely pulled, you know, prices may have to uh complete these auctions. So I ended up taking off pretty much, you know, all of the profits off at 80%. And then um so that was a nice uh five uh to one uh trade only in one position. Uh but it was still a nice trade overall. So two positions entered, one was a one:1 and the other one was a 5:1 and then uh new trades, right? So it was the um the Canadian dollar and um it was really kind of based on the same uh fundamental trade ideas. So um earlier uh a couple of weeks ago we had um the um trade dispute, right? So we had the US Canada insults dig in for protracted trade war. So both sides signal no plans to return to negotiating table anytime soon. So, I knew the CAD, in fact, this was this was on the 25th of August, I knew the CAD should have been on the weaker side, right? Especially against the uh the yen. Um, and so uh with that, um I thought with uh if this does continue on, then uh the economy for the uh the Canadian economy uh should uh probably uh stall. the central bank uh Bank of Canada are unlikely to hike rates in this kind of environment where you've got economic uncertainty and so um uh I thought that it's best to look for shorts and this is what I was saying. This is one of the trade recommendations in the uh in the group um in my private members group. So we managed to get in or I managed to get in anyway um uh up here, right? So this was the uh the trade entry around here on the Tuesday and prices continued actually to move to the upside, right? Triggering me into one, two, three posit sorry uh one uh I got in the initial market entry and then my pending orders were 1, two, three. So I was in four positions, right? So I ended up taking off a one one on each of these positions, right? So that trade there was a one one. That one was a one one. That was a one one. So that was those are three one one trades. And then for my market order, my initial entry which was around here, uh I've um held trades and I just nearly reached my target, right? It was around 80%. Really and truly on perspective. I should have probably taken profit just before it reached that um that round number there. But um um doesn't matter anyway. Uh what I'll do is I'm going to trail my stop down right to just above this area here. So um if it does reach these uh this round number again then what I'll do is I'll probably take profit maybe just before that. So maybe somewhere around here. It's close enough to 80% and that will represent a really nice uh trade. Um that would be somewhere around a what's that about another 5 to one type trade right 5 and a half to one type trade. So, if I get anywhere around that 112 round number, that's where I will look to get uh look to take, you know, the majority of profits off, if not all of the profits off. So, uh yeah, that's really where I am with that. Um so, I hope you uh found the analysis useful. I hope you all have a great trading week. Uh, take care, stay blessed, and until the next