Gold glistens after softer US inflation: Asian Open - 13th July 2023

Market Summary:

• US inflation data was broadly softer than expected at 3% y/y (3.1% forecast, 4% prior) and 0.2% m/m (0.3% forecast, 0.1% prior) whilst core CPI fell to 4.8% (5% forecast, 5.3% prior) and 0.2% m/m (0.3%, 0.4% prior)
• Shelter was the main contributor at 0.4% m/m, but it was the slowest pace since the end of 2021, and core services excluding housing (a key measure watched by the Fed) was little changed on the month
• Whist this still sees the Fed on track to hike this month, many are questioning whether they should hike again in August which could mean the terminal rate would be 5.5%
• Bond yields were broadly lower as hawkish bets were trimmed, weighing on the US dollar with the dollar index falling over 1% during its worst day since early January
• That that was accompanied with a risk-on reaction to see indices, commodities and currencies against the US dollar rally (AUD and NZD were the strongest majors, CHF and EUR were not far behind and all rallied over 1% against the USD)
• The Japanese yen continued to strengthen and is the strongest FX major over the past week, with some questioning whether the BOJ are behind the moves and / or bets are on for some policy tightening as soon as the BOJ’s next meeting
• The BOC (Bank of Canada) delivered a hawkish 25bp hike to take their cash rate to 5%, with markets now pricing in ~75% chance of another hike in September, sending USD/CAD to a 2-week low in line with our bearish bias (and keeps a run for 1.30 alive and well)
• The RBNZ held rates at 5.5% as widely expected, and maintained a dovish tone to their statement which reinforced views that they have reached their terminal rate of the cycle
• RBA Governor Philip Lowe confirmed during a speech that the RBA will implement many of the recommendation from the independent review from 2024, such as reducing monetary policy decisions from 11 per year to 8, holding press conferences after each one and releasing the quarterly SOMP (statement on monetary policy) on the day of cash rate decisions
• Japan’s core machinery orders contracted -7.6% m/m in May and -87% y/y, undermining some bets that the BOJ will lose their ultra-dovish policy and producer prices also fell below expectations
• Yet it failed to prevent the yen from continuing to selloff and pushed USD/JPY below 140

Events in focus (AEDT):

• 11:00 – Australian inflation expectations
• 13:00 – China’s trade balance data
• 16:00 – UK data dump (construction/manufacturing/industrial output, GDP, trade)
• 21:00 – OPEC monthly report
• 22:30 – US jobless claims, producer prices

Technically Speaking:

• EUR/USD rose to its highest level since March 2022 and closed above 1.1100, a level which could provide support for any pullback (if not, 1.1060 becomes the next level of defence for bulls)

• USD/JPY broke beneath 140 like a hot knife through butter ahead of US inflation, and closed beneath 139 (and the March trendline) by NY close. Support was found at the 138.18 December high, but with such a strong bearish rally then traders may still be tempted to fade into small rallies to keep the trend alive (but should be aware o of several key high residing between 137.74 – 138.18
• AUD/USD enjoyed its most bullish day since January 6^th and looks set to challenge the 0.6800 handle. A potential bullish flag is forming on the 1-hour chart
• The S&P 500 and Nasdaq 100 rose to their highest levels since April and January 2022 respectively, both are currently on track for bearish engulfing weeks although they handed back most of the day’s earlier gains to form bearish pinbars on the daily chart
• The Nikkei 225 closed beneath 32k and at a 5-week low, but found support at a the 61.8% Fibonacci retracement level. As futures markets point to a slightly higher open, dare we say an inflection point could be near?
• AUD/NZD printed a bearish hammer on the daily chart, which we hoped can prompt a pullback to within Tuesday’s range to form a swing low ahead of a move for 1.0900
• Gold reached the lower bounce of our 1960 – 1970 target, landing right on the 1-day implied volatility band around 15
• WTI crude oil rallied to a 10-week high and closed above $75 and June’s ‘production cut’ high , leaving $76 as the next key level for bulls to conquer

ASX 200 at a glance:

• The ASX 200 rose for a second day, although it met resistance around the 200-day EMA near 7150
• As it rallied form the open, we didn’t get the pullback to the 50% Marabuzo line ~7050 outlined in yesterday’s report
• However, the strong lead from Wall Street and SPI futures (+0.49%) suggests a strong start today, so perhaps a run for 7200 could be on the cards

Gold daily chart:

Gold saw a decisive break above 1938 resistance after finding support around 1900 in June. Prices have also cleared the 20, 50 and 100-day EMAs, which has been accompanied with an RSI break of its own bearish trendline and above the 50 level to show positive momentum. The next target range is around the 1985 high to 2000 level, and any pullback towards 1940 would likely be welcomed by bullish dup buyers. Perhaps a hot employment print could help with such a pullback, but given the strength of the breakout it is also possible we may see gold move higher with only shallow retracements. A break below 1937 invalidates the bullish bias.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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