U.S. equity markets kicked off the week on a positive note, ending a two-day fall which sent the S&P 500 to lowest levels since July 11 – total declines of 2.6% from the 2,490.9 peak were recorded on August 8. The low trading volumes on Wall Street indicates that investors are still uncertain as to where to head next, and many investors have been hedging their portfolios by adding gold. According to latest data from the Commodity Futures Trading Commission, net-long positions rose to highest levels since October 2016, and gold ETF’s have seen some decent inflows so far this month. However, the precious metal continues to be challenged by the $1,300 resistance level, where it has failed on two occasions this year to break through. If gold gathers momentum and manages to close the week above $1,300, I believe we’ll be seeing another leg higher, with a potential to test 2016 highs around $1,375.

It seems the political turmoil in Washington will keep investors on edge for now. The clashes with North Korea, the divisions within the Congress, the debt ceiling negotiations, and the ability to implement the long-awaited tax and stimulus measures, will all play a significant role in where markets go next. However, it’s evident that investors will remain on the defensive for some time.

This week’s key event continues to be the Jackson Hole Economic Policy Symposium. Euro traders managed to push the single currency above 1.18 yesterday, on expectations that ECB’s President might announce a shift in policy. On this date, five years ago, Mario Draghi delivered his famous “whatever it takes” speech. During the following ECB meeting, a new plan for buying bonds from Eurozone countries was announced, and since then, the monetary policy has been slackening. This time, investors are expecting Mr. Draghi to take the opposite direction and announce the beginning of policy normalization. While the Euro has already priced in much of the policy shift, an official announcement will provide further support. However, I expect Mario Draghi to choose his words very carefully, and he probably won’t provide a clear roadmap on what’s coming next. Even when the ECB starts normalizing policy, it will be very slow and not a significant shift. This is why I expect a slight pullback in the Euro from current levels, but given the recent strength in Eurozone data, I would still prefer to buy the dips than sell the rallies.