Issue 23 – The week of July 18th, 2022

Key Resistance and Supports: Upcoming Week

Reports of Note due out this week:

Monday

• CAD Housing Starts. The Housing Starts, released by the Canadian Mortgage and Housing Corporation, capture how many new single-family homes or buildings were constructed. It shows the strength of the Canadian housing market, which can be considered as the economy as a whole due to Housing Starts’ sensitivity to changes in the business cycle. A high reading is seen as positive for the CAD, while a low reading is seen as negative. C$ up equals precious metals down and vice versa.

Tuesday

• USA Weekly Crude Oil Stocks. API’s Weekly Statistical Bulletin (WSB) has reported total U.S. and regional data relating to refinery operations and the production of the four major petroleum products: motor gasoline, kerosene jet fuel, distillate (by sulphur content), and residual fuel oil. These products represent more than 85% of the total petroleum industry. Stocks down are good for precious metals.

Wednesday

• CHINA. The People´s Bank of China announces the PBoC Interest Rate Decision. If the PBoC is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the CNY. Likewise, if the PBoC has a dovish view of the Chinese economy and keeps the ongoing interest rate, or cuts the interest rate, it is negative or bearish.
• CAD Consumer Price Index. The Consumer Price Index (CPI), released by Statistics Canada, measures price movements by comparing the retail prices of a representative shopping basket of goods and services. The purchasing power of CAD is dragged down by inflation. The Bank of Canada aims at an inflation range (of 1%-3%). Generally speaking, a high reading is seen as anticipatory of a rate hike and is positive (or bullish) for the CAD.
• CAD Industrial Product Price Index. The Industrial Product Price released by Statistics Canada measures price changes for significant commodities Canadian manufacturers sell. Changes in the IPP are widely followed as an indicator of commodity inflation. A high reading is seen as positive (or bullish) for the CAD, whereas a low reading is seen as negative (or bearish).

Thursday

• ECB Interest Rate Decision. The European Central Bank announces ECB Interest Rate Decision. Usually, if the ECB is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.
• CAD ADP Employment Change. The Employment Change released by Automatic Data Processing, Inc measures the change in the number of employed people in Canada. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. So a high reading is traditionally seen as positive, or bullish for the CAD, while a low reading is seen as negative, or bearish.

Friday

• CAD Retail Sales. The Retail Sales released by Statistics Canada is a monthly data that shows all goods sold by retailers based on a sampling of retail stores of different types and sizes. The retail sales index is often taken as an indicator of consumer confidence. It shows the performance of the retail sector in the short term. Generally speaking, the positive economic growth anticipates bullish movements for the CAD.
• USA CFTC Net Gold Positions. The weekly Commitments of Traders (COT) report provides information on the size and the direction of the positions taken, across all maturities, with participants primarily based in Chicago and New York futures markets. Forex trades focus on “non-commercial” or speculative positions, to determine whether a trend remains healthy or not, and also market sentiment towards a certain asset.

Geopolitics

The global flight to quality continues with investor funds fleeing from precious metals, foreign currencies, and equities to the safety of the US dollar. The Yen and the Euro have sold off strongly to multi-year lows versus the greenback, as have precious metals. Given the high US CPI print last week, markets are speculating that the Federal Reserve will hike rates up by either 75 or 100 basis points at their net meeting on July 27. The Fed very much wants to see inflation start to fall before a recession starts to take hold. A 100-point hike would help convey that they are prepared to do what is necessary to tame the inflation rate. Before that, the European Central Bank (ECB) will announce its intentions for interest rate policy on Thursday. At this point, there is no consensus as to what action, if any, they will take.

The Call

Precious metals will remain under pressure again this week as the US dollar remains strong compared to the rest of its trading partners. Gold has some decent support at the 1700 handle, but if that is breached there isn’t a lot below there to support it technically. To the upside 1742 will be a level of significant resistance. Silver is a similar story with the potential to make new lows by the end of the week. Drops below 18.11 will probably see trading below the 18.00 handle. To the upside, the market will need to get above 19.35 to confirm losses have abated.

Last Week in Review

• Precious metals had a very volatile trading range mostly to the downside as the global flight to quality benefits the US$ above all else
• Bank of Canada raised interest rates by 1% or 100 basis points
• US CPI came in at a multi-decade high of 9.1% rise year on year showing inflation has not begun to slow down yet
• Ukraine and Russia reach a tentative deal to move grains via ships in the Black Sea

	Gold	Silver
Open	1741	19.32
High	1745	19.40
Low	1697	18.13
Close	1707	18.65