Gold Analysis: Asian Open – 24th July 2023

Market Summary:

• The Japanese yen was sharply lower across the board on Friday in the early stages of the European session on a Reuters report that the BOJ are likely to hold monetary policy unchanged this week
• Earlier during Friday’s Asian session, the yen was already facing selling pressure due to softer-than-expected inflation data
• USD/JPY rose to just shy of 142 on its best day in nearly three months
• Soft retail sales data in Canada points to a slowing economy and takes some pressure off of the OC to hike again in September, sending USD/CAD to a 3-day high. Sales rose just 0.2% m/m compared with 1.1% previously, and 0% y/y compared with 1.3% previously.
• Yet UK shoppers continue to defy rising interest rates, with retail sales rising 0.7% m/m (up from 0.3%) which keeps the pressure on the BOE to hike (even if 50bp is debatable given inflation may have peaked). GBP/CAD broke a 4-day losing streak and shows the potential to head for 1.7100 over the near-term.

 

Events in focus (AEDT):

Flash PMI data is very much the theme of the day with data coming out for Australia, Germany, Eurozone, UK and the US. And this places AUD/USD, EUR/USD, GBP/USD and the radar for FX majors traders.

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• 09:00 – Australian manufacturing and services PMI
• 17:30 – German manufacturing, services and composite PMI
• 18:00 – Eurozone manufacturing, services and composite PMI
• 18:30 – UK manufacturing, services and composite PMI
• 23:45 – US manufacturing, services and composite PMI

 

 

Technically Speaking:

• USD/JPY erased most of the prior week’s losses and is consolidating around the weekly highs. The move may be overextended over the near term, so bulls may want to see dips above 140.50 for a potential move to 143
• AUD/USD fell to a 7-day low, but it may be able to find support above 67c over the near term, around the original breakout level on July 1th
• NZD/USD retraced for a sixth day and saw a bearish Marabuzo week formed, which is a bearish engulfing candle with little to now upper or lower wick. Bears may want to fade into minor rallies on the intraday timeframe and seek a move down to 61c
• AUD/JPY formed another bullish hammer week, although this time with a bullish close and Friday’s rally stopped just short of the head and shoulders target around 95.93. The pair remains one to consider for bulls to enter on dip leading into Friday’s BOJ meeting, assuming appetite for risk remains supported
• AUD/NZD reached our 1.0900 target, and it wouldn’t come as a huge surprise to see prices consolidate or retrace from current levels. At which point we’d seek evidence of a higher low above 1.0800.
• The Nikkei 225 retraced lower for a second day on Friday and formed a spinning top Doji. A break above Friday’s high assumes bullish continuation whilst prices hold above Friday’s low.
• The China A50 printed a bullish engulfing candle on Friday to suggest a swing ow in place. As mentioned in last Monday’s report, we’re looking for a potential break above the bearish trendline from the YTD high whilst prices hold above the 12,400 lows.
• Gold rose for a third week yet printed a bearish hammer around 1985, suggesting at least a pause in its rally ahead of Wednesday’s FOMC meeting
• WTI crude oil rose for a third week
• The US dollar index (DXY) retraced against losses sustained the prior week, and came close to touching the May 2022 low in line with our near-term bullish bias. Support was also found at the 200-day EMA with a double bottom, which leaves room for further upside if the Fed are more hawkish as expected later this week (or a decent swing trade short opportunity of they provide a dovish hike).

 

 

ASX 200 at a glance:

• The ASX 200 produced a spinning top doji last week beneath 7400 resistance to show the prior week’s rally has lost steam
• Volatility was around half of the prior week’s range
• It closed slightly higher which means it was the first week to not alternate its direction in six weeks
• Prices also closed back above 7300
• I retain the view that volatility may be lower and traders may want to seek opportunities on intraday timeframes, or opt to step aside until its next directional move gets underway

 

Gold 4-hour Chart:

Gold retraced lower for a third day on Friday after reaching out initial $1985 target. It likely requires a dovish tone to the Fed’s meeting on Wednesday for it to stand any chance of heading to $2000, and volatility may be lower heading into the event.

The 4-hour chart shows prices respecting a bullish trendline, although I question its strength given the Oji which already pierced it on Friday. Still, prices are holding above the 38.2% Fibonacci ratio, so perhaps we can see a minor bounce towards 1973 over the near-term.  A break beneath 1955 brings the lows around $1946 into focus.

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge