Gold rises on renewed Fed-cut bets, crude oil falters at resistance

Market Summary:

• A set of softer inflation figures for Canada weakened bolstered bets that the BOC and central banks in general will begin cutting interest rates sooner
• CAD was the weakest major with the USD a close second, the Canada’s OIS curve curling lower on refreshed easing bets
• A slim majority of economists expect the Fed will cut their interest rate by 25bp in June, according to a Reuters poll (which would lower the Fed’s target band to 5.00 – 5.25%)
• This is in line with Fed fund futures ricing, which also imply with a slim majority of 51.2% of such a move
• US traders returned to their desks after the long weekend and provided a volatile session for FX majors; the US dollar index fell to a 12-day low before recouping around half of the day’s losses to close above 104, sending EUR/USD back above 1.08
• AUD/USD rose for a fifth day, but once again saw a false intraday break above 0.6550 to closed with a wide-legged hammer, whilst NZD/USD reached a 5-week high but met resistance at 62c before pulling back
• US yields were lower across the curve (particularly at the lower end which is more sensitive to monetary policy) which weighed on the US dollar and allowed gold rise for a fourth day and tag $2030
• New Zealand’s producer prices in Q4 were hotter than expected, although lower than Q3 which keeps the pressure on the RBNZ to potentially hike – or at reintroduce a tightening bias at their next meeting
• Nvidia fell -4.5% during its worst day of the year ahead of a key earnings report, and managed to take Wall Street indices down with it
• Options markets imply an +/-11% move on the stock, which in turn could turn into a make or break situation for Wall Street indices as the week progresses
• The Nasdaq 100 and S&P 500 fell to a 4-day low, with the S&P closing back below 5000

Events in focus (AEDT):

• 10:30 – Australian leading index (Melbourne Institute)
• 10:50 – Japan’s trade data
• 11:00 - Australian wage price index

Gold technical analysis:

With gold now having risen for a fourth consecutive day, it has allowed a nice bullish trend has develop on the 1-hour chart. The recent leg higher was accompanied with rising volume, which diminished as prices retraced. Prices are now trying to build support around the 10-day EMA and prior highs / double top around $2024 and RSI (2) is oversold, so perhaps a inflection point is near. Also note that RSI 14 is holding above 50, which backs up momentum of the overall trend.

Bulls could seek dips with a view to target the $2036 to $2040 region, near the weekly R1 pivot and monthly pivot point. A weaker US dollar and lower yields would be the ideal scenario for gold to extend its current rally. However, I suspect the $2040 region may provide some resistance or a pullback.

Crude oil technical analysis:

In the first week of the month crude oil produced a nice bounce from the 2024 open price, in line with my bullish bias. Although it is now struggling to make a break above the 2023 open. A bearish engulfing candle formed around this key level at the end of January, and we have since seen a subsequent bearish engulfing and bearish outside day form which both failed to retest the January high. The only thing that appears to be holding it up at this stages is the 200-day EMA, but as we can see a bearish divergence with RSI 2 coupled with failed attempts to retest the Jan high, I suspect a move lower is in order – even if the 200-day EMA sits nearby.

Bears can either seek shorts beneath the 200-day EMA, or fade into rallies towards the 2023 highs with a stop above either the January high or $80 handle, with $76 and $74 being viable downside targets (assuming it provides a satisfactory reward to risk ratio).

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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