Gold coils ahead of NFP, ASX looks set to retrace

The US dollar was lower for a third day on Wednesday, although volatility was capped due to the Independence Day public holiday in the US. With the USD index holding just above Wednesday’s low, markets appear positioned for NFP weakness. AUD/USD sits just beneath Tuesday’s high after rising from Thursday’s open, just above 67c.

• GBP/USD rose just 15 pips despite the general election begin in full swing, although there is yet to be any surprises with Labour on track to claim a sweeping landslide victory and take more seats than when Tony Blair swept his way into power in 1997.
• WTI crude oil futures trade around $84, but for now seems hesitant to break above Tuesday’s 10-week high even if bears are reluctant to step back in.
• The S&P 500 E-mini futures contract sneaked in a minor record new high at the open, but found resistance just below 5600 before retracing.
• The China A50 formed a likely swing high just below 12,300 on Thursday, but due to major support around 12,000 the bias remains to seek dips towards 12,000 – 12,100 for an anticipated move up towards 12,500.

Economic events (times in AEST)

Nonfarm payrolls is the main calendar event later today, where traders are on high alert for any signs of weakness to confirm underperforming data seen elsewhere. A disappointing NFP report would be the icing on the cake for those touting for Fed cuts, given the softer PCE inflation and ISM services report (among others) these past two weeks). However, traders would be wise to remember that NFP job change has a tendency to beat estimates around 2/3 times in recent years, and that figure seems to have a disproportionate impact on the initial market response. You can read more in my statistical analysis report on NFP data. 

• 09:30 – JP household spending
• 09:50 – JP foreign reserves
• 15:00 – SG retail sales
• 16:00 – DE industrial production
• 19:00 – EU retail sales
• 22:30 – US Nonfarm payrolls
• 22:30 – CA employment report

ASX 200 at a glance:

• Thursday was the best day for the ASX 200 cash index in seven after it took the strong lead from Wall Street, ahead of Independence Day
• 9 of its 11 sectors advanced (led by materials and financial), 2 declined (led by utilities and info tech)
• This saw the ASX 200 easily surpass our bullish bias outlined yesterday, and now trades at the top of its compression range

ASX 200 futures (SPI 200) technical analysis:

The ASX may have seen solid gains on Thursday, yet resistance around 7830 suggests that the move is in need of a pullback. Not only did it have the June 26 high to contend with, but trend resistance also resided in the area. Besides, a retracement seems more likely after such a strong move, especially when we are sandwiched between Independence Day in the US and NFP later today – which can restrict volatility without a fresh catalyst.

A bearish target of 7760 seems feasible over the near term, where the 20-day EMA resides between the weekly and monthly pivot points. Bears could seek to fade into minor rallies towards yesterday’s high.

Gold technical analysis:

Gold trend structures look increasingly bullish since he recovered back above 2300 on June the 27th. A small indecision candle formed on Thursday, but that's to be expected given it was Independence Day in the US. The rally could simply be pausing for breath ahead of anticipated break above the 2368 high, on route to retest of the June high. And should NFP disappoint as hopes, gold could certainly benefit.

However, there is a chance that NFP could come in strong once again and send gold lower. We could even see gold rally heading into the reports, betting that it will be softer – classic “buy the rumour, sell the fact” setup. The one-hour chart shows a nice consolidation pattern forming, but I tend to be suspicious of these patterns and therefore on guard for a spike lower before an anticipated move towards the June high. Bulls could seek dips around the monthly R1 pivot or pivot points, which sit near the 20-day average, to seek longs towards 2370, 2370, and the June high.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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