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Precious metals benefit from the street’s mass dollar exit on Friday with both gold and silver making pleasing technical developments.

Gold

Gold’s umbilical-like inverse price action to the U.S. dollar has been once again underlined on Friday. As the U.S. bowed before all and U.S. yields dropped, Gold rocketed higher and closed 15 dollars higher at 1293.85. From a technical perspective, the much-maligned yellow metal’s price action over the past week has been very decisive. It has held its 100-day moving average over the past week on a closing basis. The attempts on its trend line support have also been repelled in no uncertain terms.

All of this will be music to the ears of long-suffering bullish traders, especially on the futures market where positioning is running a 50% of its yearly peak. The charts suggest that gold is attempting a meaningful topside breakout. It closed just above its double top resistance at 1291.50 on Friday in a pleasing technical development.

With the dollar slightly higher in Asia today, benefiting from the temporary travails of the Euro, gold has slid $1.50 to 1291.75. Intraday support is at the day’s low at 1291.15 followed by some clear air to the 100-day moving average at 1280.30 followed by the impressive trend line support line at 1269.20. Resistance appears on Friday’s high at 1297.75 followed by 1300.00 and then 1306.50.

Silver

Not to be outdone, silver surged higher on Friday as well closing at the double top resistance at 17.2950 from its 17.0780 open. In the process, it carved through its 200-day moving average and over the past week, the trendline support going back to July, has successfully beaten off all attacks.

The trend line support was tested three times over the last week, and the fact that it has held so precisely now lend substantial support to silver. It is further reinforced by the 100-day moving average, with both indicators lying at 16.9240 today.

With the dollar slightly stronger in Asia silver has fallen 10 cents to its 200-day moving average and interim support at 17.1625.

It did not finish on a closing basis above the double top at 17.2950 on Friday, and this will remain interim resistance to start. A daily close above sets up an advance on the 17.4800 level, and a close above that implies silver may rally above 18.0000.

All in all, the technical picture is looking rosy for silver, with the ascending triangle suggesting higher levels await ahead.

Failed German coalition talks weigh on EUR

The single currency tumbled at market opening on Monday amid rising political tensions in Germany. The euro fell 0.60% against the US dollar and slid as low as 1.1722 after the Free Democratic Party (FDP) walked away the negotiating table, which would force Angela Merkel to form a minority government. The other solution would be to hold a fresh round of elections.

However, the sell-off was short-lived, which suggests that investors are not worried about potential negative impacts on Germany’s economic outlook. EUR/USD bounced back above 1.18. Indeed, there is little chance the political jitters disrupts the pace of business in the country.

On the equity side, the German DAX has opened slightly lower on Monday, at 12,932 points, before initiating a slow recovery towards Friday’s closing price. Overall, European indices were treading water this morning, with the exception of Swiss equities. The Swiss Performance Index (SPI) and Swiss Market Index (SMI) were up 0.50% and 0.66%, respectively, as Roche’s stock jumped more than 4% after the drug maker received approval for two experimental medicines for cancer and haemophilia.

Elsewhere in the FX market, the pound sterling extended gains this morning, with GBP/USD rising towards the next resistance at 1.3338 (high from October 13th), as investors turned positive again about Brexit negotiations. Indeed, there were rumours that the UK would be willing to open the purse strings regarding the Brexit bill.

The euro was the worst performer among its major peers on Monday after German negotiations to form a coalition government broke down during the weekend. Consequently, the dollar index jumped on the news, but the yen might attract investors’ attention this week as the future of the US tax overhaul is still unclear.

The German Chancellor, Angela Merkel, failed to meet the second deadline to form a three-way coalition government during the weekend after the liberal FDP party announced on late Sunday that it would pull out from negotiations as the parties (CDU, FDP, Greens) could not find common solutions to key issues. Merkel, who is on her fourth term of leadership and whose Conservative party lost a majority in September’s federal elections, has now two options: either to form a coalition with the Greens or to leave the President Frank-Walter Steinmeier to call for new elections which could deteriorate her political position. Merkel announced on Monday that she would inform the president later on the day about the disappointing outcome.

Following the developments, the euro hit a one-week low at $1.1721 in early Asia before it inched up to $1.1748, being 0.40% down on the day. Euro/yen retreated by 0.48% to 131.60, reaching the lowest price since September, while euro/pound declined by 0.50% to a one-week low of 0.8873.

Despite political noise rising in Germany, investors remain optimistic about the common currency as recent economic data out of Eurozone appeared relatively strong, while the ECB’s plans to tighten monetary policy encourages euro investments.

In the absence of important economic releases, investors will keep a close eye on comments made by the ECB Chief, Mario Draghi in front of the European Parliament’s economic committee at 1400GMT. Speeches by the ECB Vice-president, Vitor Constancio, and the executive member, Sabine Lautenschlager, later in the day will also be in focus.

The dollar index bounced on the back of a weaker euro to 93.83, gaining 0.18% during the Asian trading hours. Moreover, a senior White House aide stating on Sunday that the US President would not insist to include a repealing key of the Obamacare health insurance in the tax overhaul provided some help to the greenback as this would somewhat uncomplicate decisions on tax reforms. However, the Senate which still debates the tax code will give a final announcement only after the Thanksgiving holiday.

Dollar/yen stood flat at 112.05.

In terms of data, Japanese trade figures released early on Monday missed expectations. Exports rose by 14.0% y/y in October compared to a growth of 15.8% expected, remaining near to September’s mark of 14.1%. Imports increased by 6.9 percentage points to 18.9% y/y but fell below the forecast of 20.2%. The trade surplus narrowed from 668 billion yen to 285 billion yen, missing projections of a surplus of 330 billion yen.

The pound climbed by 0.26% to $1.3244 after the EU called on the UK Prime Minister, Theresa May once again to move on the divorce bill until mid-December when EU leaders will gather to judge on the progress of Brexit talks.

In other currencies, the aussie and the kiwi posted moderate gains, helped by the rising gap between the local government bond yields and the US treasury yields. The kiwi was trading 0.23% higher at $0.6831 and the aussie reversed earlier losses, being flat at $0.7566.

XAUUSD (1291.99): Gold prices rallied to a 4-week high by Friday's close as price action cleared past the major resistance level near 1285.00. As expected, the upside breakout from the range within 1285.00 and 1274 region suggests further upside in price. We expect the upside momentum to continue with price action potentially targeting the next main resistance level at 1304 - 1300 region. To the downside, any declines will be limited to the 1285.00 level here support could now be established. In the short term however, the pullback to 1285.00 level could be limited with any pullbacks likely to be shallow.

USDJPY (112.01): The USDJPY extended the declines on Friday as price slipped through to the 112.00 support level. This marks the first target that has been achieved to the downside. Any gains are likely to be limited to the 112.80 - 113.00 level. The pullback to this level will suggest further downside in price. USDJPY is likely to extend the declines down to the 110.70 level in the coming week or two. This would mark the completion of the rising wedge pattern on the daily chart. From the 110.70 support, USDJPY could however start to renew its bullish momentum. Still, as long as the upper resistance near 114.00 remains in place, USDJPY could be seen trading flat.

EURUSD (1.1733): The EURUSD managed to consolidate near the 1.1800 handle on Friday. Price action remains slightly bullish following the breakout above the 1.1704 resistance level. In the near term, EURUSD might be posting a pullback towards the 1.1704 support level. Establishing support here could keep EURUSD biased to the upside. The next main resistance that could be targeted comes in at 1.1950 region. To the downside, in the event that EURUSD slips below 1.1704 - 1.1672 level and fails to establish support we can expect the downside momentum to push the currency lower towards the 1.1500 support.

The U.S. dollar was seen easing back by Friday's close. This came amid a slightly better than expected building permits and housing starts data. However, the markets shrugged aside the data and the U.S. dollar index continues to consolidate near the support level.

Canada released its monthly inflation figures. Data showed that consumer prices eased in October as inflation slowed to 1.4% annually. This was slower than the 1.6% increase registered on an annual basis the month before. The decline in the inflation came on account of slower fuel price increase.

Looking ahead, the economic data today includes a scheduled speech by ECB President Mario Draghi. Draghi is expected to testify to the European Parliament in Brussels today and the recent ECB's monetary policy actions are likely to be addressed as well. On the economic front, data today includes the German PPI numbers which is forecast to rise 0.2% compared to 0.3% increase posted previously

The pair trades within tight consolidation on Monday after broader bears found footstep at 0.7540 zone (weekly 100SMA).

Stronger bounce cannot be ruled out as slow stochastic is reversing from oversold territory on daily chart while RSI is at the oversold zone border.

Upticks should be ideally capped by falling 10SMA (0.7621) with extended recovery to challenge falling 20SMA (0.7655) but needed to stay below 200SMA (0.7695).

Only sustained break here would neutralize short-term bears for stronger correction of the downleg from 0.8124 (08 Sep peak).

Res: 0.7585, 0.7621, 0.7655, 0.7695
Sup: 0.7535, 0.7516, 0.7496, 0.7460

The pair is consolidating above five-week low at 111.88 on Monday after cracking key support at 111.90 (Fibo 38.2% of larger 107.31/114.73 ascend) but without break lower for now.

Bearish near-term bias favors further downside after Friday’s strong fall and last week’s bearish close (the second straight week in red).

Sustained break below 111.90 (Fibo 38.2% support) and 111.71 (converged 100/200 SMA’s) needed to confirm bearish continuation and open 111.46 (top of thick daily cloud) which marks next strong support.

Double bear-cross (10/20SMA and Tenkan-sen / Kijun-sen with 10/30SMA bear-cross forming) adds on bearish pressure for extension of corrective leg from 114.73 peak.

Limited upside action is expected before bears resume with broken 55SMA (112.34) expected to ideally cap with extended upticks to be limited by falling hourly cloud (112.68/86).

Res: 112.34, 112.68, 112.86, 113.19
Sup: 111.90, 111.71, 111.46, 111.02

A symmetrical triangle has dominated the USD/CNH currency pair since early August. It seems that this pattern has reach maturity, thus pointing to a soon breakout. As apparent on the chart, the US Dollar has likewise formed a channel down. It is currently testing the upper boundary of this pattern. The given currency has just moved above the 55-, 100– and 200-hour SMA. This suggests that traders might still see a slight movement north. However, this advance should be limited by the upper triangle boundary and the weekly R1 in the 6.65/66 area. Given that the pair entered the senior pattern from above, the breakout is likely to be southwards. Thus, even if the rate manages to reach 6.65, the US Dollar is expected to depreciate against the Chinese Yuan in the medium term.