Top 3 charts this week: BRAComp, EURUSD, Gold

1:13 PM 23 October 2018


  • Bovespa (BRAComp) retains gains ahead of the run-off

  • Is the ECB’s meeting going to strengthen the euro?

  • Gold prices (GOLD) trade above the 100DMA

The second round of presidential elections in Brazil will take place on Sunday. According to recent polls Jari Bolsonaro, being considered as a more market-friendly candidate, seems to be in a good position to claim a victory. These hopes act in favour of the Brazilian stock market and the real as well. Taking into account that the Brazilian stock market remains unfazed despite heavy declines elsewhere one may suppose that this market could take a stab at making its new highs should Wall Street get back to gains. If so, an attack on 89000 points seems to be on the cards. Bulls could then look at the 50- and 100-period MA (the red and green lines in the chart below) - both line have begun rising suggesting a possible onset of the long-term bull market there. On the the hand, the old proverb “buy rumours, sell facts” can also be taken into consideration. Will investors begin cashing in on their longs when Bolsonaro wins? The answer will be offered next week.

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Source: xStation5

The European Central Bank meeting will take place this Thursday. The most recent falls in the EURUSD have been caused by issues related to a budget of Italy. What’s more, rising 10Y yields in Europe could call into question whether the ECB will decide to wind down its QE programme altogether at the end of this year. Moreover, macroeconomic releases also have not proved to be strong of late (today’s print of PPI from Germany came in above expectations but without passing rising costs on customers Germany-based companies could experience a squeeze on their margins, therefore an increase of PPI without a corresponding move in CPI may be viewed negatively). The EURUSD seems to be bouncing off 1.1450 once again, this level has been already tested three times. Will Mario Draghi push the euro higher? The press conference will take place at 1:30 pm BST - questions regarding the state of play in Italy will be surely brought up.

Source: xStation5

Gold is benefiting from heightened volatility. Prices of the precious metal surged this morning and a move above the 100DMA could be viewed as another signal for buyers. Additionally, the net short position has decreased of late according to the CFTC data, and if short covering continues, it should support gold prices. The lower correlation coefficient between gold prices and the US dollar could be another positive sign for the yellow metal. Gold prices are currently going up toward the 38.2% retracement - the level coinciding with the lows from 2017. The next target for buyers could be found nearby the 50% retracement which almost coincides with the 200DMA. Will upcoming weeks turn out gold supportive?

Source: xStation5

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