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Gold shrugs of a stronger dollar to post an impressive recovery, but it is silver's rally that will have grabbed technical analysts attention.

Gold

Down, but not out, best describes gold's price action on Friday. Having sold off to a low at 1260.00, gold staged a remarkable 18 dollar comeback to close at 1278.00 as news emerged that North Korea may be about to test a new missile capable of reaching the United States. The rally has continued this morning with gold moving to 1284.50 as China returns from holiday. Iranian sabre rattling, Trump remarks on North Korea and further details of the proposed missile test have injected a geopolitical risk premium back into the yellow metal.

Admittedly gold was approaching a technically oversold condition in the short term anyway. The key now will be if the rally can maintain its longevity once the dust settles and in the face of higher U.S. yields and a stronger U.S. dollar.

From present levels, gold has resistance at 1291.00 and 1296.00. On the downside, the 100-day moving average at 1273.501 should provide initial; support ahead of Friday's lows at 1260.00. We expect that gold will trade with a bid tone in Asia today but will be vulnerable to headline created movements ahead of this weeks data highlight, the U.S. FOMC minutes.

Silver

Silver's technical picture is altogether more favorable to gold. Silver held around its Fibonacci 50% retracement level at 16.5750 for the past week; silver collapsed to 16.3350. It was the price action from there that was particularly interesting though. Racing higher to 18.6600 and in the process creating a bullish outside reversal day.

Silver has followed gold higher this morning and is now trading at 16.9540, just above its 100-day moving average at 16.9043 which capped its gains all of the last week. A close at these levels implies that silver has made a serious attempt to base in its longer-term 38.2/50.0% Fibonacci retracement box.

The next resistance is at the 17.0000 regions which silver almost reached this morning, followed by the 200-day moving average at 17.1650. Support rests at 16.7900 and the now distant Friday low at 16.3350.

Silver's price action is particularly constructive given the general strength of the U.S. dollar and its lower beta to geopolitical noise then gold. Time will tell as to whether this reflected its more oversold condition, or whether it is a general signal that the worst may be over for the precious metal correction.

GOLD - The commodity closed marginally lower after rejecting lower level prices the past week. On the downside, support comes in at the 1,270.00 level where a break will turn attention to the 1,260.00 level. Further down, a cut through here will open the door for a move lower towards the 1,250.00 level. Below here if seen could trigger further downside pressure targeting the 1,240.00 level. Conversely, resistance resides at the 1,280.00 level where a break will aim at the 1,290.00 level. A turn above there will expose the 1,300.00 level. Further out, resistance stands at the 1,320.00 level. All in all, GOLD looks to recover further higher.

Dollar Fluctuates Amid North Korea Tensions. The greenback jumped on Friday on the payrolls data, that disappointed regarding jobs growth, although wage inflation rose and the jobless rate fell, before falling again on Russian media reports that North Korea is preparing to test a missile capable of reaching the US West Coast.

Kiwi Drops to 5-Month Low as Nats Lose Two Seats. The New Zealand dollar fell to a five-month low after the National Party lost two seats after special votes were counted while market bets on a Federal Reserve rate hike in the US increased. The kiwi fell to 70.53 US cents from 70.92 cents on Friday.

Gold Rebounds on North Korean Concerns. Gold bounced up from a two-month low on Friday, on concerns that North Korea is preparing to test a long-range missile and on support from the U.S. dollar’s shift into negative territory.Gold was up to $1276 per ounce on Monday after hitting its low of $1260.50 on Friday.

Record U.S. Oil Exports Weigh on Oil Prices. Crude oil briefly slumped below US$50 after a brief rally, as EIA data about U.S. crude oil exports showed these had hit a record-high of 1.98 million barrels per day. Refiners are returning to normal operation before the maintenance season shutdowns, with the EIA also saying in its Weekly Petroleum Status Report that crude oil inventories fell by an impressive 6 million barrels in the week to Sept. 29, versus analyst expectations ranging between a draw of 3 million barrels to a build of 2.7 million barrels. WTI traded at $49.48 a barrel on Monday, with Brent crude at $55.71.

EURUSD - With the pair extending its weakness other past week, more decline is envisaged. However, we should see a recovery higher in the new week. Resistance comes in at 1.1800 level with a cut through here opening the door for more upside towards the 1.1850 level. Further up, resistance lies at the 1.1900 level where a break will expose the 1.1950 level. Conversely, support lies at the 1.1700 level where a violation will aim at the 1.1650 level. A break of here will aim at the 1.1600 level. Below here will open the door for more weakness towards the 1.1550. All in all, EURUSD continues to face further bear threats but with caution.

USDCHF - With the pair rejecting higher prices to close flat on Friday, more weakness is envisaged in the new week. On the downside, support lies at the 0.9550 level. A turn below here will open the door for more weakness towards the 0.9500 level and then the 0.9450 level. On the upside, resistance resides at the 0.9650 level where a break will clear the way for more strength to occur towards the 0.9700 level. Further out, resistance comes in at the 0.9750 level. Above here if seen will turn attention to 0.9800. All in all, USDCHF faces downside pressure on price rejection.

Well, it's Monday Asian session and we have got some nice price action offering opportunity for savvy traders who were ready for the open!

Do you remember back in August, we were talking about the different ways to draw your GBP/JPY trend lines? Well although the first subjective trend line broke to the downside, price has since been following it back up and respecting the level on both sides.

Just think how often these trend line breakouts fail and price action just follows the line back in the direction of the original trend. Not something that the trading textbooks will tell you, but something worth thinking about when you're trading those sorts of setups.

There is no subjectivity however in horizontal zones like the obvious one we've had marked on the daily chart here:

GBP/JPY Daily:

As you can seem price has come back down to test the previous resistance zone as support, but as there was zero intraday bounce, there was no reason for us to be blindly buying it.

However, now that price has gone straight through the zone, it doesn't mean that it's lost its power. It just simply means that we can now possibly look for it to act as resistance with any short term retests on the intraday chart being shorted:

GBP/JPY 15 Minute:

As you can see on the 15 minute chart, price gapped up 25 pips or so, right into the previous short term support level and then was rejected as it was turned to resistance. A beautiful little trade if you were at your charts for the open!

It's a Mad, Mad, Mad, Mad, World

The markets are unsettled this morning with traders dwelling on the questionable North Korea headline about testing a long-range missile soon. With Columbus day and the anniversary of the founding of the North Korean communist party in sight, the market is back on headline watch, However, dealers will probably need some actionable convincing that geopolitical risk is on the rise again.

Turkey

Turkish -US relations took a turn for the worse over the weekend. The US is reportedly suspending non-immigrant visa services at its diplomatic facilities in Turkey following the arrest of a consulate employee, prompting Turkey to halt visa services in the U.S.

This latest escalation adds more fuel to the fire after tension was nearing a boil the over US support for Syrian Kurdish militants in the war against ISIS, who Turkey views as a terrorist group.

USDTRY is off 3.0 % in early trade exacerbated by weak liquidity conditions at the open and what was available as it was priced at unwarranted premiums. All too typical on Interbank electronic FX platforms these days. However, as Tokyo comes into the fray TRYJPY liquidity is returning to normal and turn over is very high.

New Zealand

NZ election is back on investors radar screens when special votes were counted on Saturday. At the crux of the issue: opposition party wants to remould the RBNZ to include more independent private sector business types in policy decision process. Whichever way you want to read into that, it does imply a level of uncertainty regarding the future course of monetary policy, but as we all know what business person is every in favour of paying higher interest rates on loans. So by extension, I view the other side of the flow even more dovish than the New Acting Governor Spencer who is a carbon copy of Wheeler and cut from the same cloth.

The UK and Continent

May's calamitous Conservative party conference speech continues to weigh like a nightmare on the Pound. While the frenzied calls for her resignation have tempered, political risks and the lack of Brexit headway are most significant negatives underlying GBP. UK politics is a mess and unlikely to get any cleaner.

EU political risk continues to simmer over the Catalan independence debate. The market may be underpriced large on this risk event so EURUSD should remain on offer until cooler heads prevail

US Dollar

US CPI is the focal point of this week early. After August CPI surprise, the worm may be turning as markets look for convincing from this weeks headline.

EUR/USD gyrated lower to 1.1669 with weak downside momentum last week. As a temporary was formed, initial bias is neutral this week first. Deeper decline is expected as long as 1.1832 resistance holds. Below 1.1669 will extend the fall from 1.2091 to 38.2% retracement of 1.0569 to 1.2091 at 1.1510. As such decline is viewed as a correction to rise from 1.5069, we'd expect strong support from 1.1510 to bring rebound. Meanwhile, break of 1.1832 resistance will argue that the correction is already completed and turn bias back to the upside for retesting 1.2091 high.

In the bigger picture, rise from medium term bottom at 1.0339 is not finished yet. It's expected to continue after pull back from 1.2091 completes. And, next target will be 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. However, it should be noted that there is no confirmation of trend reversal yet. That is, such rebound from 1.0399 could be a correction. And the long term fall from 1.6039 (2008 high) could resume. Hence, we'd be cautious on strong resistance from 1.2516 to limit upside.

In the long term picture, 1.0339 is now seen as an important bottom as the down trend from 1.6039 (2008 high) could have completed. It's still early to decide whether price action form 1.0339 is developing into a corrective or impulsive move. But in either case, further rally would be seen to 38.2% retracement of 1.6039 to 1.0339 at 1.2516

USD/JPY edged higher to 113.43 last week but failed to sustain above medium term falling channel resistance. Initial bias is neutral. this week first. On the upside, break of 113.43 and sustained trading above the channel resistance will argue that correction from 118.65 is already completed with three waves down to 107.31. Break of 114.49 will confirm this bullish case and target a test on 118.65 next. On the downside, considering bearish divergence condition in 4 hour MACD, break of 112.31 will suggest rejection from the channel resistance and turn bias back to the downside.

In the bigger picture, rise from 98.97 (2016 low) is seen as the second leg of the corrective pattern from 125.85 (2015 high). It's unclear whether this this second leg has completed at 118.65 or not. But medium term outlook will be mildly bearish as long as 114.49 resistance holds. And, there is prospect of breaking 98.97 ahead. Meanwhile, break of 114.49 will bring retest of 125.85 high. But even in that case, we don't expect a break there on first attempt.

In the long term picture, the rise from 75.56 (2011 low) long term bottom to 125.85 top is viewed as an impulsive move, no change in this view. Price actions from 125.85 are seen as a corrective move which could still extend. In case of deeper fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77. Up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

GBP/USD dropped sharply to as low as 1.3026 last week as decline from 1.3651 accelerated. Initial bias remains on the downside this week for 1.2773 key support first. The strong downside momentum is raising the chance of medium term reversal. Decisive break there will affirm this bearish case and bring deeper fall to retest 1.1946 low. Meanwhile, break of 1.3221 minor resistance will at least indicate near term bottoming and turn bias back to the upside for rebound.

In the bigger picture, while the medium term rebound from 1.1946 was strong, GBP/USD hit strong resistance from the falling trend line. Outlook is turned a bit mixed and we'll turn neutral first. On the downside, decisive break of 1.2773 key support will argue that rebound from 1.1946 has completed. The corrective structure of rise from 1.1946 to 1.3651 will in turn suggest that long term down trend is now completed. Break of 1.1946 low should then be seen. On the upside, break of 1.3835 support turned resistance will revive the case of trend reversal and target 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466 .

In the longer term picture, long the outlook is turned a bit mixed as GBP/USD failed to break through falling tend line resistance. We'll turn neutral first and assess the outlook again and price actions unfold.