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

Hi, my name is Leon Ro, currency trader and trading coach at trading1180.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 30th of August. Hope you're all doing well and had a great trading week. So getting into the week ahead and this is from tradingeconomics.com and they say that global markets are underpinned by long-term interest rates which remained elevated at the turn of September amid high energy prices, ample AI related corporate debt issuance and wide budget deficits against signs of resilient economic growth. Economic data from the US will be centered on the labor market as FOMC members note the US is at full employment headlined by the BLS employment situation report. ISM PMIs are also featured in Europe. Eurozone inflation and unemployment rates are awaited. PMIs will also be focus the focus in China for its first batch of August data. A busy week in Japan will include retail sales, the unemployment rate, industrial production and consumer confidence. GDP data is due from Australia while central banks in Canada and New Zealand will decide on policy. So uh there's a lot of potentially market moving uh news. Although when we look at overall risk sentiment and looking at the uh the VIX um volatility at is at really a low the monthly lows and really kind of a low for uh quite a while and that's really due especially in August volatility does dry up because it's the summer months right traders are away uh on holiday but looking at this overall in terms of risk sentiment and um and it does look like risk is more um from a from a risk on perspective meaning that traders are looking for really more uh yield return right and um and risk on assets like the S&P and you can see the S&P over the last uh month has moved to the upside made new uh alltime highs uh gold uh although uh did pull back in fact in um and made some uh some highs in in uh in August not necessarily all-time highs or anything like that but just monthly highs up to around 47 $700. We've had a bit of a pullback and that drive, that market move was more due to a weaker dollar rather than anything else. Uh but now we're getting uh the 2-year uh Treasury yield which is uh it reflects really bond traders expectations on really kind of short-term interest rates uh move higher. And this is after really Jackson Hull and um uh Kevin Walsh who is now the new Fed governor um being a bit more hawkish, which we'll get into. Um and uh oil as well kind of settling um over the last uh month between uh the $96 a barrel and 82 and we're hovering around this this $90 a barrel and we watch oil prices cuz it kind of tends to feed into inflation especially due to the um the Middle East conflict. So looking around on really the front pages of of Bloomberg and it doesn't seem to uh uh to kind of scream out any major uh riskoff events that are really kind of affecting the market. So uh I would agree that really right now uh the market is in a bit more risk on uh which means in uh currency uh in forex the forex world we would really more focus on higher yielding currencies um as well as uh central banks that are looking to uh hike rates rather than hold or cut. Right? in terms of by the uh um central bank that is looking to hike rates and uh really kind of short the central banks which are really holding or or cutting rates. Uh and so moving on to uh interest rate probabilities and we have the Fed uh who are now looking to potentially hike rates in terms of this about 50/50 um probability and that's moved up and this is really due to um the uh uh Wall Street uh it says here piles on rate hike bets as Walsh renews hawkish tone. So, Federal Reserve Chair Chairman Kevin Walsh doubled down on his vow to tame inflation in a speech at Jackson Hole, Wyoming, dispelling some doubts about his commitment to price stability after Walsh spoke 2-year Treasury yield shot up by 12 basis points to 4.35% and traders piled into bets that a quarter point rate hike next month is more likely than not. Uh Walsh's comments were seen as a clear sign that the Fed will start raising rates again, but it won't alone ease bond market pressure that has rippled through the cost of mortgages and all other types of loans. So the dollar at the moment and the Fed uh it does look like uh this has shot up and they are a bit on on on the hawkish side. So when we do look at the uh the dollar index and this is the equally weighted dollar index. So this is the dollar equally weighted against the euro, the pound, the yen, the CAD, the Australian dollar, New Zealand dollar, and the Swiss Frank. We're seeing that move uh to the upside, right? The dollar strength o strengthen overall really based on um an increased interest rate uh hike expectation or the possibility of one. So, if you didn't really, you know, buy into the um into the dollar uh last week, you may have missed out on that unless you're willing to buy uh right now. Now, there is some downside potential, and this is if the uh data really doesn't support the narrative, right? So, we just got hawkish Kevin Walsh, but we've also got inflation data coming at some point. And if that inflation data doesn't support um a a central bank that really should hike and the Fed should hike, then we are likely to maybe you know bounce uh off of this uh level of uh supply and potential level of um of resistance right around here. So um I would say in the short term though the dollar does look like more of a buyers as the market starts to buy the rumor starts to price in the potential for a hike in September. But if that doesn't come to fruition then or there's data that um supports actually rate more rate holds than rate hikes then you're likely to see the dollar start to move um to the downside. So the dollar can be really a buy and a sell um at highs um or lows right? to buy at lows and sell at highs. Uh looking at the euro index and the euro overall uh does look to me like it is more of a buy than a cell. Uh reason being is because we've had uh some data. Um and I guess um uh in here which talks about the Euro zones inflation rate is set to reach highest since um 20123. So it says here inflation in the euro area probably surged this month to its highest pace since 2023. Keeping up pressure on policy makers to raise interest rates. Consumer prices climbed 3.3% from a year earlier in August, up from 2.9% in July, according to the median of 31 forecasts in a Bloomberg survey. The region's price data will be the last before poly policy makers set borrowing costs on September the 10th with investors and economists widely anticipating a second rate hike. So um yeah, it does look like inflation is causing uh the central bank to look to hike rates and it says here ECB Chernobyl says rates must rise more on strong economies. So again the uh likelihood is that uh in terms of the ECB we do have really uh hikes been already priced in. So the market is at about a 97% uh chance of a of a hike. So, doesn't mean that necessarily uh we're going to necessarily move uh higher on the euro. Uh so any pullbacks though should be nice buying opportunities. And what I mean by move higher, I mean um rate hikes have really been priced in. So um what's the chances of prices moving to the upside? I would say if we get a situation where the um after they hike rates potentially on the 10th, uh they remain very very hish, right? And then the market will price in more hikes. But a pullback on the euro I think is a really nice buying opportunity to look for um some long trades on the euro. Looking at the pound and the pound overall um I think is a little bit on more on the mixed side and um it says here that the uh it says uh energy price cap will rise by 4% from October. So um in the UK we're expecting higher inflation. It says household energy costs in the UK will rise uh in October due to the Middle East conflicts pushing up wholesale gas and electricity prices. The price cap will rise 4% to 1,7723 from October the 1st, increasing the unit cost to the highest level in 3 years. Energy Secretary Mitter um said that uh said she was looking at how to provide extra help to struggling households that are under pressure. So that would you know maybe signal that the central bank may look to potentially hike rates. But it says here that Bailey plays down inflation threat before Bank of England rate decisions. So it says here that the Bank of England Governor Andrew Bailey says the UK is not yet experiencing significant second round inflation effects citing a softening labor market. Bailey notes that the Bank of England is assessing the situation meeting by meeting and argues against forward guidance in a more volatile world. Uh the UK's latest CPI print shows inflation picking up with household sentiment expecting price increases over the next year reaching 3.9% but the labor market remains weak and declining private sector wage growth and that really is signaling a potential stagflationary environment right so if you if the labor market remains weak meaning you know jobs employment uh not great and the economy might is probably slowing down but you're getting a rise in inflation um that is a stagflationary environment. Plus, we've also got the upcoming uh UK uh the Labor budget, our government fiscal budget in October and that is expected to have a bit of a contractionary effect on uh the economy as taxes are being are expected to be hiked. Uh so I think going into the next month or two that the UK can be a sell at highs but also a buy at lows. And the reason why it would be more of a buy at lows would be the fact that the UK and at the moment the um Bank of England does have a relatively high um interest rate. And so the carry trade idea where you buy where you borrow a lower interest rate currency, lower yielding currency and you invest it in a higher yielding currency and uh make money on the swap is still alive and well, right? That trade idea is uh um investors are still looking to uh to um uh invest in that idea. So uh I think if the pound would look a bit attractive as it moves to the downside uh but also I think upside is also capped. And then we look at the uh the yen and the yen although we did have uh towards the end of July beginning [snorts] of August we had this um uh massive uh move and this was due to uh intervention. We've had this pullback pretty much over uh the you know most of August, right? And it says here though that the it says Australia's second largest pension fund makes big bullish bet on the yen. And it says Australian Retirement Trust has built its biggest overweight position in the Japanese yen in years, betting that markets are underpricing Bank of Japan interest rate hikes. The fund's senior portfolio manager Jimmy Luca thinks the market has priced in the drag from the higher energy prices, but the odds of the Bank of Japan rate hikes looks too low and any revision in those two factors should support the yen. Lucas sees the fair value for dollar yen at around 150 potentially reaching the high 140s and the fund has an underweight position in the US treasuries amid above target inflation and resilient growth. So um Australia's bank um uh pension fund matter fact is uh is is quite bullish or second largest is quite bullish on the yen and it says here Bessant says a disorderly yen would risk higher US rates. Though Treasury Secretary Scott Bessant defended his move to support the yen, saying that any extra sorry any extreme volatility in the J Japanese currency could feed through to higher US interest rates. Bessent said that disorderly yen markets can trigger forced unwinds which could state destabilize global markets and ultimately raise borrowing costs for American families and businesses. Besson stated that his department had followed the exchange stabilization fund institute which authorizes the secretary to deal in foreign exchange in support of orderly exchange disagreements. So what this is ultimately saying is that the uh the value of the yen really is and and volatility of the yen is is uh directly tied to the US and actually they don't want a disorderly um um yen market meaning the they don't want the yen to uh weaken back towards the 160s. Um and it is at the 160s now. So they don't want to get back to maybe the 161s, 162, 163s because then they'll end up uh likely um uh intervening again like they did uh at the beginning of July because it's really directly directly affected to US interest rates. So that is a really u quite a large supportive factor. one of the um I guess headwinds for the U uh for the for the for the yen um and a non-supportive factor and keeping it weak is the fact that uh the yen is used as a bit of a carry uh at the moment meaning that the uh it's because of its low interest rate it's weighing on the uh the yen investors are preferring to uh use the the yen as a carry to buy um higher yielding currencies and so uh ultimately uh the effect of that is that it can be on the weak side but if we get any more downside on this yen I think of course we should get another intervention which should uh probably push prices a little higher right so I would probably look to um u be a bit more bullish on the uh on the yen going into uh September of course you can look for shorts as Well, but I think if prices don't really bounce from here and I think they head towards these lows again, I think we may start to look for more intervention and the yen will be uh defended. So, I think the yen is um more a little bit more of a buy than a sell at the moment. Although, I totally understand why if you do see any pullbacks on the yen, you would look for some shorts based on uh the carry. So, overall, I think the dollar in the short term is a little bit more of a buy than a sell. The euro should be a buy on pullbacks. The pound can be a buy or a sell. And the yen, I think, is more of a buy leaning towards uh the buy side. So, looking at the major pairs, um the divergences aren't really that good in terms of there's not really a lot of currencies where you could clearly say there's a strong bias either way. probably, you know, you can look for uh the nuances in in the biases, but overall, for example, with the Euro dollar, um with the dollar strengthening, it would be hard really to kind of trade this pair in my opinion because you've got a hawkish uh central bank, both central banks, hishuish uh Fed and a hawkish um uh European central bank. So where this is likely to you know find value where investors are looking to buy uh is is is a lot trickier to uh determine. But if you are looking to trade this pair technically then you're looking at this demand zone here or a demand zone uh towards the lower side around the 1.154s. If you're looking at um sell trades, then you are looking and looking to um buy the dollar, then you're looking for a pullback up into uh this zone before looking at going uh short. Looking at the dollar yen and the dollar yen again, a little bit of a trickier one. I think in the short term with the high carry, the US dollar should find, you know, a bit more uh [snorts] upside um against the yen. But as we head up into the 16162s, if we ever do, then you can probably be um with a high degree of certainty and there's no certainty in the in in in you know in forex but in terms of the high probability that we could get a bit more of this type of price action where uh the um the market and Bess and the Bank of Japan intervene in the markets, right? But at for now, I think it's in a little bit of no man's land. I think if anything, maybe uh you may want to look for probably a bit more buys um if we do get a bit more of a pullback. So, um yeah, I don't know whether the uh I think this would be more of a sell if the US dollar was a bit more on the do side in terms of the central bank. But if we do get a pull back down into the 156s, 155s, uh we could see a bit more of a buy. But that buy would be dependent more on the um the Fed being a hawkish as we get down here. If there's a hawkish Fed and a hawkish Bank of Japan would mean for me that the Fed would the the dollar should end up um being the dominant currency. But if we come down here um and we get a pretty much more of a neutral Fed and more of a hawkish uh yen then like the pension fund I would say uh the yen should be the buy and we should see a bit more uh downside dollar yen at the moment with a hawkish um uh uh Fed at the moment. uh this should continue probably moving to the downside I would I would think although there are uh demand zones around here uh I wouldn't necessarily place much faith in that there was a really nice setup that traders uh got into uh in the private members group and it was a stop hunt right here you know move to the upside and then a short trade to the downside that was a really nice uh trade uh for traders going um into the week and they should, you know, be in some uh some profit. Uh but if you are looking at going short, then you're looking at really a pullback up into this supply zone before looking for a short trade. Looking at the Euro pound and the Euro pound, I think the euro probably has the edge based really more on the fact that the European Central Bank are looking to high crates and the uh Bank of England are looking to hold fire at the moment. So any pullbacks I think into this demand zone I think is going to be decent for a buy trade. Uh the euro yen uh again you would think that the with both central banks being on the hawkish side uh it's a bit more bit harder to determine uh a direction overall. Right? So um you can look for buys or sells if you are looking to trade this pair. any kind of pull back into a decent demand zone should be maybe bought if you're looking to buy. If you're looking to sell, then you're looking at probably this a move up to this uh supply zone before looking for sells. Personally, I'm not really looking to take this trade. uh the um when you got two strong currencies um it's a bit harder to determine a direction. But if you do want to look for um trades from just a technical perspective, then you're looking for a buy on a pullback or a sell if prices move higher up. And the pound yen um the pound yen is a sell for me, more of a sell. Uh I'm actually in this trade to the short side, which I'll get into uh a little later in the video. Um and it's really based on um the fact that I think the pound um can be a bit more of a sell, more on the weaker side as we head into September uh October sides. Um, I do acknowledge that the carry for the um the pound yen really kind of favors the uh the pound, but I do think that this uh could see a little bit of a pullback at the moment. But if you are looking for a buy trade, then if you are, you know, you want to wait for price to kind of pull back into this zone, then look for a uh bit more of a buy. But for now, I think this could be we could see a bit more of a pullback before going higher. Um, but as we get into uh the later part of this year, I think the pound has a bit more risk uh going going against it, meaning that I think the pound should sell off a little bit more and then it should uh increase in value. So, I've decided to position myself short, which I'll get into um in a little bit towards the new trade section. uh looking at the metals and the uh gold is uh looking at uh being a bit of a sell at the moment simply because the dollar uh looks like a a buy, right? If you have a hish central bank, then you should have gold move to the uh to the downside, which is basically what is happening. And uh if you do want to be a buyer, right, you think you're that the hawkishness of the uh Fed isn't necessarily going to last, then a pull back into that demand zone should be decent. Otherwise, I think you're looking at sells from around this area here on a pullback as long as the probability of a rate hike remains on the table. So if price has pulled back into this zone and there's data you know inflation data comes in and it's let's say for example it comes in lower than forecast or uh jobs data comes in you know lower than forecast then I think that that gold can be a bit more of a buy at these areas but if we still if the central bank still remains a bit hish the Fed remain a bit on the hawkish side and data supporting more rate hikes then I don't think there's any really technical level that's going to hold these levels. um when it comes to a hawkish central bank. And then we've got the S&P and the S&P I think uh may now stall out in terms of making new all-time highs. I think with a hawkish uh Fed at the moment, we should probably see a little bit more downside. Um we typically tend to see uh more upside when uh the central bank is uh either holding or cutting rates. uh central bank hiking rates uh meaning higher interest rates, higher yields, investors will tend to and typically uh park some money, take money out of the S&P and uh go into other higher yielding assets like the dollar like uh you know treasury bonds. Um so ultimately we could see a bit more downside in fact. So um I wouldn't be surprised the hawkish central bank the more we may see prices move to the downside. So this could be a decent move if you are looking at shorts and uh to the downside. But ultimately once we start to get a Fed regime where it seems a bit more dovish uh or they're looking to hold rates or if any data comes in where it suggests that the Fed are likely to hold rates um um in the near future then uh buying should resume on the S&P. uh looking at uh new trades I've taken over the last uh week or so. Aussie Swiss really the [clears throat] um the fundamentals behind this was that the Australian dollar uh have a much higher carry. The Swiss Frank is being used as a uh funding currency and so um on this pullback into this daily zone uh managed to get involved in this trade. So managed to uh get in around here. Where was it now? It was around here about about 9:00 in the morning um and had five positions all filled with my stop loss um at the five 0.5655 area. So as prices pulled back I got into you know these uh these trades 1 2 3 4 [snorts] plus the market order and then just managed to basically take one to ones off at each uh level as prices pulled back and triggered me in. And then I took a one one uh off at these levels here. So one one there, then one one there like that. And just kept basically doing that. And I've only got now one position which is the original market order. And that trade now has run up to around a three and a about 3 to one, three and a bit to one. So this is been a really nice trade. Several traders again got in this on the uh in the private members group. So that worked out to be a good trade. And now we've got the uh pound yen. Um basically a similar setup where um we've got basically uh it's a bit of a supply zone, bit of a different supply zone. It's kind of 80% discounts from these highs. Um, so this is the reason why I kind of got in and I think we could see some downside as we head to the yen looking to hike rates and the Bank of Japan looking to hike rates and also as well um the uh the Bank of Japan um sorry the Bank of England uh possibly looking to uh hold rates and so I'm in two positions at the moment. So prices have pulled back. This is my original entry right here. and then uh prices have pulled back and triggered me into a second position. I haven't taken any profit off uh just yet. This hasn't reached a one or anything like that. So, um let's see what happens. If prices do uh reach a one to one on this second position, this pullback here, then I'll just cancel these the rest of these sell orders and I'll just uh uh hopefully uh hold this trade down to uh wherever hopefully, you know, down to these uh these lows. Right? So that is um those are the two trades that I'm in at the moment. Um so hope you all found the analysis useful. Don't forget to like, subscribe, and share the content with your fellow trading colleagues. Um, I wish you all the best and a great trading week and and if you're in the UK, have a great bank holiday as well. Take care all and uh until the next