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David Becker
Dollar Recovers Ground After NFP and Sends Gold, Metals down

Gold prices broke out on Monday as riskier assets traded under pressure. The dollar weakened across the spectrum accept against the Chinese Yuan. US yields tumbled, led down by the benchmark 10-year yield.  Tensions between the US and China increased over the weekend, as Chinese announced that it was retaliating after President Trump announced on Friday that he planned to increase tariffs on 300-billion of Chinese imports. Growth in the US service sector also came under pressure. The US ISM services PMI decelerated in July to the weakest level in 3-years. This comes as the Chinese government let the Yuan slip to the lowest levels since 2008.

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Technical Analysis

Gold prices broke out on Monday and are poised to test higher levels as positive momentum begins to accelerate higher. The first level of target resistance is seen near the May 2013 highs at 1,478. Short term support on gold prices is seen near the recent breakout level at 1,553. Short term momentum has turned positive as the fast stochastic generated a crossover buy signal. The fast stochastic accelerated higher and is now printing a reading of 84, above the overbought trigger level of 80 which could foreshadow a correction. Medium-term momentum has also turned positive as the MACD (moving average convergence divergence) generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in the black with an upward sloping trajectory which points to higher gold prices.

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US ISM Services Declines More than Expected

One of the key service sector surveys in the US shows that business is slowing. The US services sectors decelerated in July to its weakest level in 3-years, according to the Institute of Supply Management. This comes as trade worries weighed on business orders and the outlook for the overall economy declined. The Institute for Supply Management reported on Monday that its non-manufacturing activity index fell to 53.7 from 55.1 in June. Expectations had been for a reading of 55.5 for July.

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