Gold found support at $1305 on Friday just around the 50% retracement of the $1180 to $1433 rally. We put this late US session upside move on position adjustment ahead of this week’s Fed meeting than anything else. The news that Larry Summers has stepped down in the race for the Fed job should be taken positively by traders as Janet Yellen is seen a more dovish and therefore keen to keep monetary policy easy. We feel traders will look to sell rallies to $1354.
The Fed news has seen the USD offered across the board today and USD/JPY has fallen to a low of 98.58, just above the September 6 low. Key support on the pair kicks in at 98.28 (the top of the daily ichimoku cloud) and we expect any follow-through selling in Europe for this level to be defended. Traders are selling USDs, however the news about the Fed should push up risk assets and thus the JPY should weaken across the board, which should limit the damage in USD/JPY. With Japan on holiday today there may be some impact on liquidity, which could exaggerate the moves.
US 500 cash (S&P 500)
All eyes on the S&P, with the US benchmark a mere 1.2% from making a new all-time high, with 1709.67 the September 6 high. The prospect of low rates for longer and Janet Yellen at the helm should keep equities bid. There is a raft of key data releases this week, but we feel the prospect of a higher high in the US stock market is strong.
The pair has rallied nicely above the 93 handle this morning courtesy of Larry Summers withdrawing himself from the race to be the next Fed chairman. The bookies had him as favourite to take over from Ben Bernanke on February 1 and therefore this news is a bit of a shock and to some removes one of the major macro concerns facing traders. Janet Yellen should now be clear favourite and this will appease market bulls in a big way. As we have seen over the last few weeks there is a huge amount of supply around 0.9330 and thus a close above here would be very positive.
See AUD/USD chart below.
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