Market will need justification for consolidation

In a recent development, the government shutdown in the US that occurred during Donald Trump’s first term had a minimal impact. Let’s hope this situation resolves quickly.

If the current shutdown, which began three working days ago, continues for an extended period, it may have some effect on the economy and might impact GDP growth.

This shutdown resulted from Congress’s inability to reach a funding agreement.

Nonetheless, despite the delay in resolution, if the government employees receive their salaries eventually, it should mitigate significant negative consequences for the economy.

The only factor that could potentially harm the economy more severely would be any layoffs.

This shutdown is a concern, particularly if it lingers, as it may postpone the release of important economic reports. The ongoing shutdown has already delayed US jobs numbers and non-farm payroll (NFP) data. Although the earlier-released ADP employment figures showed a drop, they only reflect private sector employment and are not considered as reliable as the comprehensive US jobs report.

Further delays in the issuance of other reports, such as jobless claims and trade balance data, could occur if no agreement is reached soon.

Next week is expected to be relatively quiet regarding US economic data.

By mid-week, the Federal Reserve will release the minutes from its September meeting, and the Consumer Sentiment Index will offer insights into consumer spending and confidence levels.

However, the postponement of certain key economic data is concerning. An extended shutdown might result in delays for critical indicators, which could make Fed officials uneasy about their decisions regarding interest rate cuts.

I believe the Fed possesses the necessary tools to monitor economic trends, but ultimately, it’s the reliable official data that holds the most significance. So far, it is clear that the US shutdown is not having a substantial impact on the economy. However, ongoing uncertainty surrounding the resolution could negatively affect economic prospects.

If Congress reaches an agreement this week, things could return to normal, but further delays could prove harmful.

The financial markets are already feeling the pressure from unresolved tariffs and trade barriers.

The data landscape is expected to be somewhat mixed due to delays in data releases. However, certain reports will come out, such as the minutes from last month’s Federal Open Market Committee (FOMC) meeting, which will be published on Wednesday. This will be followed by the University of Michigan’s Consumer Sentiment report set to be released on Friday.

With limited data available, the market may shift its focus to remarks from Federal Reserve officials, paying close attention to their discussions on economic matters.

Last week, gold emerged as the primary beneficiary of the US government shutdown, which contributed to its rise as traders and asset managers continued to invest in the metal, driving it to new heights.

While gold’s upward trajectory is expected to persist and might temporarily exceed $ 3,900, the likelihood of a correction increases as prices rise.

The market will need justification for consolidation, and profit-taking may occur. Two potential catalysts for a correction could be an agreement among US Congress members or a reduction in geopolitical tensions.

However, it’s important to note that ongoing disagreements could lead to the opposite effect.

WEEKLY OUTLOOK — OCT 6-10

GOLD @ USD 3887— There remains a possibility that gold will test the important USD 3900 level, but it needs to surpass USD 3922 in order to reach USD 3938.

Nevertheless, I anticipate some risk of profit-taking. A drop below USD 3835-38 could prompt a move towards USD 3815 or below.

EURO @ 1.1743— The Euro needs to break through 1.1825 to continue its upward movement. On the lower side, there is support near 1.1590, which should lead to some recovery.

GBP @ 1.3480— Pound Sterling is currently in a consolidation phase following a period of weakness. It is anticipated to remain above 1.3340 and is expected to make a recovery.

However, a breakout above 1.3620 is necessary for it to climb further. If it does not surpass this level, the cable is likely to move within the current range.

JPY @ 147.45— The key support level for the USD lies between 146.10-20. If this range remains intact, the US dollar is likely to move toward the 148.50-80 ranges.

A breakthrough here could lead to 149.30. However, a decline could see it fall to 145.70.

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