Gold, ASX 200 Analysis: Asian Open - 31st July 2023

Market Summary:

• A key measure of US inflation for the Fed fell to a 21-month low on Friday, building the case for them to hold interest rates in September.
• Core CPI rose 4.1% (4.2% expected, 4.6% prior) or 0.2% m/m as forecast whilst PCE inflation rose 3% y/y (3.1% forecast, 3.8% prior) or 0.3% (0.5% expected, prior upwardly revised to 0.5%)
• Labour costs also posted their smallest rise in two years, to provide further disinflationary evidence alongside stagnant producer prices and falling consumer prices
• Wall Street indices gaped higher and recouped much of Thursday’s ‘bearish engulfing’ days, although the significance of Thursday has likely capped gains heading into the end of the month
• The bank of Japan relaxed their YCC target band of +/- 0.5% by vowing to allow yields to rise above them by a “certain degree”
• Although the need for the BOJ to act was already elevated ahead of Friday’s announcement as several of Tokyo’s inflation figures rose above expectations
• Australian retail sales fell -0.8% m/m, which could help the RBA veer towards another hold at their next meeting to keep rates at the relatively low level of 4.1%
• And that’s being reflected in the performance of the Australian dollar which fell to an 8-year low against CHF, is on the cusp of reaching a 3-year high against GBP and near a 3-month low against EUR

Events in focus (AEDT):

• 09:50 – Japan’s industrial production, retail sales
• 11:00 – Australian business confidence (ANZ) and inflation gauge (Westpac-Melbourne institute)
• 11:30 – Australian housing credit
• 11:30 – China PMIs for manufacturing, services, composite (NBS)
• 15:00 – Japan’s construction orders, household confidence, housing starts
• 19:00 – Eurozone inflation

Technically Speaking:

• Month-end flows need to be taken into account today, as it can provide spurious technical signals and fake moves
• The US dollar index (DXY) rose for a second week, although Friday’s Doji shows a hesitancy for the market to break 102, near the June low
• A bullish engulfing day formed on USD/JPY despite softer US inflation figures and a relatively hawkish BOJ meeting
• A large bullish hammer formed on AUD/JPY on Friday although it still closed the week with a bearish engulfing candle
• Gold formed another Rikshaw Man Doji on the weekly chart during another week of indecision between 1945 – 1980. Assuming 1900 was a significant low, dips buyers may want toy be on the lookout for a discount.
• The Nikkei 225 formed a lower wick on Friday which saw prices rebound back above the Friday 21 Doji, to suggest demand around 32,000 and keeps us on the lookout for its next leg higher
• The Hang Seng closed above trend resistance on the daily chart although needs to clear 20k before we become confident that its ready to break significantly higher
• The China A50 enjoyed its most bullish day since November and stopped just shy of our 13,500 target
• WTI crude oil rose for a fifth week

ASX 200 at a glance:

• The ASX 200 formed a bearish outside day on Friday, although it managed to close above 7400
• The index also managed to close higher for a third week, bolstered by bets that the RBA will again hold their cash rate at 4.1% in August
• All 11 sectors rose last week, led by energy and information technology
• 30-day implied volatility rose to an 11-day high (annualised rate of 12.2%, 1-week of 1.7% and 1-day at 0.64%)
• SPI futures rose 0.26% on Friday which points to a higher open for the cash market today

Gold 1-hour chart:

A second week of indecision with a Doji shows that gold has hit the US summer lull. And that means we’re not looking for any epic moves over the near-term and would prefer toy see intraday opportunities.

The 1-hour chart shows prices are forming a scrappy uptrend with a messy series of higher highs and low, and it could in fact be a corrective move against the sharp move lower on Thursday. And that the rise is simply the filling of the liquidity gap left during Thursday’s selloff.

RSI (14) is tracking prices higher and above 50, so we’re looking for a move to Friday’s high whilst prices remain above the 1956 (a break above it would be a bonus) to bring 1970 into focus.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge