Caution in the Markets

Updated: Nov 4, 2020

There is currently a great deal of optimism in the markets at this time. Momentum is booming and risk markets are looking to break out. However, there is so many uncertainties at the moment, volume was light all around yesterday and many of the risk sensitive assets we follow are starting to breakdown even as the overall indexes are moving up.


These are all signs of caution. It could be something as simple as currently overbought conditions. It's also possible risk markets could be making a short term double-top while everyone is believing imminent break-out.


Let's look at two charts DXY and GOLD to see where we are:


DXY

As noted last week, the DXY has resolved the falling-wedge to the upside. The DXY is a proxy for risk, as it falls risk assets increase and rises risk assets decrease. As such we are expecting for the risk markets to begin to fade over the next several days as the DXY moves above the 94.00 level. This bodes well for lower prices in the JPY crosses such as AUD/JPY, NZD/JPY and CAD/JPY.


XAU/USD

Currently GOLD is trading within a very defined channel. However our long-term moving average is coming in to support the trend. We believe that it is only a matter of time before XAU/USD breaks to the upside. However, in the short term we expect a fake breakout to the downside, only to be supported by the bottom if the channel before finally breaking-out for the upside. Keep an on this asset as there is much risk tied it.


Have A Great Day and Happy Trading.

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