Gold’s rally pauses for breath: Asian Open – 17th July 2023

Market Summary:

• US banking stocks posted positive earnings overall on Friday, although the lack of any noteworthy reaction suggests good earnings were already baked into the cake
• The S&P 500 and Nasdaq pulled back from their multi-month highs in what appears to be technical selling ahead of the weekend following an extended bullish run
• US consumer sentiment rose to a 2-year high according to the Michigan consumer sentiment survey, which adds to hopes that the economy can avoid a recession
• And this saw the US dollar strengthen on Friday and become the strongest FX major of the day, although it was the weakest FX major of the week
• Large speculators flipped to net-short exposure to NZD futures according to last week’s COT report (commitment of traders).
• Australia’s Treasury Secretary Jim Chalmers warned that Australia’s unemployment rate is likely to rise due to higher interest rates and slower global growth
• US import prices continued to decline according to a report on Friday, which saw prices contract -0.2% in June or -6.1% y/y (which is good for hopes of lower inflation)

Events in focus (AEDT):

• 12:00 - China data dump (GDP, investment, industrial production, retail sales, unemployment, NBS press conference)
• 22:30 – NY Fed Manufacturing

Technically Speaking:

• A stronger US dollar saw AUD/USD pullback from its 4-week high, and early trade is testing Friday’s low to suggest a retest of the May high (68.18) or the 68c handle
• USD/JPY formed a bullish engulfing day to snap a 6-day losing streak. Whilst this brings the potential for a bounce, we may also find that price action is retrained around these lows after such a volatile move (without a fresh catalyst to broadly strengthen the US dollar)
• A bullish engulfing day formed on USD/CAD and its daily range was 192% of its 20-day average
• A weekly bullish pinbar formed on AUD/JPY to suggest a swing low may have formed at 93.27. Friday’s spinning top doji warns of a potential pullback, but we’d consider bullish setups above Wednesday high of 92.21
• USD/CNH fell to a 19-day low last week but Friday’s bid for the US dollar helped the pair print a bullish-closed Dohi at the 50-day EMA, so perhaps a near-term upswing could be on the cards
• A weekly gravestone Doji formed on the Nikkei 225 and its low found support around a 61.8% Fibonacci level and 50-day EMA. Bulls could seek dips above 32k for near-term long opportunities.
• A bullish pinbar week formed on the Hang Seng at the end of May and a higher low has since formed, which suggests momentum is trying to turn higher and break out of a potential bullish continuation pattern
• Whilst the China A50 broke out to a 17-day high on Thursday, Friday’s retracement suggests there is some hesitancy for prices to break above the bearish trendline from the January high. But if prices can hold above the 12,400 lows then the bias is for prices to eventually break higher.
• By Thursday’s high, WTI crude oil has rallied over 15% in just 10 days to close at its highest level since April. Yet Friday’s bearish engulfing / outside bar suggests the rally is about to enter a period of consolidation (at a minimum) or pullback

ASX 200 at a glance:

• The ASX 200 rallied for a fourth consecutive day, formed a bullish engulfing week and closed above 7300
• The high of the day was near the June 22 open price, which is part of a potential gap resistance zone between 7135 – 7335
• Given that the prices are in close proximity to the March and June highs, met resistance at an opening gap range, the daily RSI (2) is within the overbought zone and a weak lead from Wall Street, upside potential could be limited over the near-term
• Furthermore, the weekly direction has alternated over the past six weeks which serves as a reminder of the choppy trading conditions on this timeframes, which suggests opportunities may be best suited to intraday timeframes

Gold Chart:

Gold has enjoyed a rally on the back of disinflationary data for the US (namely the softer CPI and PPI reports). Yet the stronger US dollar saw gold form a relatively small bearish engulfing candle on the daily chart, which suggests prices could be set to retrace against some of its recent gains. The 4-hour chart shows the rally stalled at the June VPOC (volume point of control) and a choppy consolidation has formed. There is also a liquidity gap between 1940 – 1950 which may seek to be filled. In which case, bears could seek the countertrend move towards trend support, or bulls could wait to see if a higher low formed above a support level or wait for a break above the recent consolidation.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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