Midweek FOREX update

The markets are stuck in a tight range, with most of the assets trying to find a direction. Especially when it comes to the USD assets. And there are two main reasons for that: Taxt Caut reform legislation in US and upcoming Christmas Holidays. The economic calendar is not giving additional volatility as well, due to absence of major events, as it was past week. Bank of Japan meeting and press-conference, RBA meeting minutes, New Zealand, British and U.S. GDP releases and Canadian employment reports. Not much for a whole trading week, huh? Friday is going to be a short day in London session with early close at 12:30 PM, so we do not expect the markets to be very volatile on that day.

Main headline events are scheduled for Tuesday - Wednesday and they come from US politicians. The biggest question for the markets is whether Republicans would be able to pass both House and Senate votes in order to finalize the tax cut deal and put the project on President's table in order to sign it. US stocks post new historical highs on the positive expectations, while the greenback does not show such a strength and confidence. We're also quite sceptic about the perspective of the US Dollar in a long-term scope. The tax reform in US creates additional budget deficit, and the only source to cover this new hole, would be to enlarge the volume of external debt, which is already huge. Add here a negative trade balance of the United States, and you will get a picture which creates concerns for the foreing investors, who could be very sensitive to such imbalances. A USD sell-off could take place on any minor disappointment. And failure of the tax reform or any changes in Fed's hawkish rhetoric next year could be such disappointments.

We're looking to reverse on precision metals like gold and silver in our mid-term perspective (4-8 weeks). You can find below a long term squeezed daily chart of gold Futures. In case if this intermediate local low (blue arrow) holds, we could see a comeback to 1280.00 / 1300.00 range of prices. Nearest resistace, 200-days Simple Moving Average is very close: 1271.09, so there are big chances that market players will try to test it this week. MACD lines have executed a bullish cross and RSI14 is back from oversold level. Any closing dayli price with RSI14 above 50% level would indicate further bearsih continuation.