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Key Highlights

• Gold prices rallied over the $2,000 and $2,020 resistance levels.
• A key bullish trend line is forming with support near $2,025 on the 4-hour chart.
• Crude oil prices are attempting a recovery wave from the $72.00 zone.
• EUR/USD climbed above the 1.1000 level before the bears appeared.

Gold Price Technical Analysis

Gold remained in a positive zone above the $1,965 level. There was a steady increase above the $1,980 and $1,985 resistance levels to start a fresh rally.

The 4-hour chart of XAU/USD indicates that the price surged above the $2,000 and $2,020 resistance levels. The price even settled above $2,000, the 100 Simple Moving Average (red, 4 hours), and 200 Simple Moving Average (green, 4 hours).

Finally, the price tested the $2,050 resistance zone. If the bulls remain in action, the price could rise further toward the $2,062 level.

An upside break above the $2,062 level could send the price soaring toward the $2,080 resistance. The next major resistance is near the $2,088 level, above which Gold could test $2,100.

On the downside, the first major support is near the $2,032 level. The main support sits near the $2,025 level. There is also a key bullish trend line forming with support near $2,025 on the same chart. Any more losses might call for a move toward the $2,000 level.

Looking at crude oil prices, the bulls appeared near the $72 zone and the price is now attempting a recovery wave.

Economic Releases to Watch Today

• US Initial Jobless Claims - Forecast 220K, versus 209K previous.
• US Pending Home Sales for Oct 2023 (YoY) - Forecast -2.0%, versus 1.1% previous.
• Canadian GDP for Q3 2023 (Annualized) – Forecast +0.2%, versus -0.2% previous.

BoJ board member Toyoaki Nakamura, in a speech to business leaders today, emphasized that Japan has not yet reached a point where it can confidently assert that the sustained and stable achievement of BoJ's 2% inflation target, along with corresponding wage growth, is within reach. He added that the current inflation in Japan is primarily driven by "cost-push factors".

In light of this assessment, he said BoJ "must patiently maintain current monetary easing for the time being." Some more time is needed before adjusting the policy.

Nevertheless, Nakamura expressed a positive outlook on Japan's economy, describing it as recovering moderately. He also anticipates that this moderate recovery will be accompanied by increases in wages, which could play a crucial role in sustaining economic growth and achieving the inflation target.

China's NBS Manufacturing PMI slightly declined from 49.5 to 49.4 in November, marking the weakest reading since December 2022 and falling below market expectation of 49.6. This decline indicates that China's manufacturing sector has been struggling to maintain consistent growth, having been in contraction for five consecutive months since April, briefly returning to expansion in September, and then slipping back into contraction in October.

NBS statistician Zhao Qinghe attributed this downturn to several factors, including "traditional off-season" effects in some manufacturing industries and "insufficient market demand". This explanation points to both cyclical and demand-driven challenges impacting the manufacturing sector.

Within manufacturing PMI, there was a drop in new-orders subindex to 49.4 from 49.5, further reflecting the demand-side struggles. Additionally, new-export-orders subindex fell to 46.3, down from 46.8, indicating challenges in external markets and potentially reflecting global economic conditions.

PMI Non-Manufacturing also witnessed a decrease, moving from 50.6 to 50.2, which was below expected 51.1. However, within the non-manufacturing PMI, construction subindex showed an improvement, rising to 55 from 53.5. The official composite PMI, which combines both manufacturing and services, fell to 50.4 from 50.7.

Japan's economy presents a mixed picture based on the latest data for October 2023. Industrial production saw a notable increase, rising 1.0% mom, exceeding expectations of a 0.7% increase.

However, manufacturers surveyed by Japan's Ministry of Economy, Trade and Industry have a mixed outlook. They expect industrial output to decrease by -0.3% mom in November but anticipate a significant climb of 3.2% mom in December. This forecast points to short-term fluctuations but overall optimism towards the year's end.

In contrast to the industrial sector, retail sales figures were less encouraging. Retail sales in October rose by 4.2% yoy, falling short of the expected 5.9% yoy increase. Despite this slower growth, retail sales have continued to mark annual gains for 20 consecutive months.

However, a month-over-month analysis reveals a downturn, with retail sales falling by -1.6% in October from September, ending a three-month streak of gains.

ANZ Business Confidence in New Zealand saw a significant increase in November, reaching its highest level since March 2015, as it rose from 23.4 to 30.8. Additionally, Own Activity Outlook improved from 23.1 to 26.3.

ANZ's analysis said the results support the idea of "soft landing" for New Zealand economy. However, ANZ points out that it's still uncertain if this slowdown will be adequate to reduce inflation to target level quickly enough.

The survey also revealed varied trends across different economic indicators. Export intentions saw an uptick from 6.1 to 9.2, indicating stronger future export plans. Investment intentions also increased marginally from 3.8 to 4.5. In contrast, employment intentions experienced a slight decrease from 5.6 to 5.4, suggesting a small dip in hiring plans.

Notably, cost expectations showed a decrease from 76.0 to 73.9, which could signal easing cost pressures. Profit expectations reversed from a negative -5.6 to a positive 1.5, reflecting an improved outlook for business profitability.

The report presented a mixed view of inflation indicators. Inflation expectations continued their downward trajectory, moving from 4.94% to 4.79%. However, pricing intentions rose slightly from 46.3 to 46.8.

ANZ also commented on the market's expectations for RBNZ's OCR. They noted that while there is market anticipation for rate cuts, the current economic indicators, particularly some stalling in inflation measures and the overall robust level of activity, suggest that the RBNZ may not be inclined to lower rates soon.

Full ANZ business confidence release here.

The latest Fed's Beige Book report indicates general slowdown in economic activity, with variations across different regions. Specifically, four districts reported "modest growth", two districts experienced "flat to slightly down", and six districts observed "slight declines" in activity.

This mixed picture reflects the diverse economic conditions across the country and points to a cautious economic outlook for the next six to twelve months, which is perceived to have "diminished" during the reporting period.

In terms of labor market dynamics, demand for labor "continued to ease". Most districts reported either flat or modest increases in overall employment. Wage growth across most districts was characterized as "modest to moderate". Notably, the report highlights "easing in wage pressures", with several districts even reporting declines in starting wages. This trend could be a response to the overall economic slowdown and a signal of less competition for labor.

Regarding prices, the report notes a general moderation in price increases across districts, although prices remain at elevated levels. The expectation is for "moderate price increases to continue into next year".

Full Fed's Beige Book report here.

Cleveland Fed President Loretta Mester, in her remarks at a conference overnight, acknowledged that while inflation remains above Fed's 2% target, there has been "discernible progress" in controlling it, even as the "overall economy has remained relatively strong".

Mester expressed confidence in the current stance of monetary policy, stating, "Monetary policy is in a good place for policymakers to assess incoming information on the economy and financial conditions."

Highlighting the need for flexibility, Mester described the central bank's rate policy as needing to be "nimble," and she believes that "the current level of the funds rate positions us well to do that."

Mester did not rule out the possibility of further rate hikes, emphasizing that the decision to increase rates further and the duration for which the rate target remains high "will depend importantly on whether the economy is evolving as expected, how the risks are changing, and the progress being made on our dual mandate goals of price stability and maximum employment."

The RBA revised up its near-term inflation forecast in November and delivered one of the “one to two” rate increases assumed in their forecasts. Not enough new information has come to hand since then to warrant delivering a second increase just yet. The monthly CPI indicator is volatile, but the October reading was a bit below expectations. The RBA is still ready to raise rates further if it sees further upside surprises on inflation. It has no tolerance for more delays in the return to the inflation target. So February is still live, but we don’t see them moving in December.

Today we reaffirm our view that the RBA is unlikely to raise the cash rate at its December meeting.

As described in the minutes of the November meeting, the staff forecasts were “predicated on there being an additional one to two increases in the cash rate over coming quarters”. The peak in rates assumed in the forecasts is “around 4½ per cent” according to the RBA’s latest Statement on Monetary Policy (SMP). One of these increases was already delivered following the November meeting. The question the RBA will be grappling with in coming months is what they need to see to turn one-and-a-half into two.

As outlined in Senior Economist Justin Smirk’s note on the monthly CPI indicator yesterday, inflation in October in fact surprised a little on the downside. These data are noisy and neither the RBA nor we take full signal from a single monthly reading. Some of the biggest downside misses, such as for holiday travel, could reverse out. Moreover, most of the services components ­– which have been such a source of concern to the RBA – are not included in the first month of the quarter. We will not know how these are tracking until the November and December releases.

That said, there were some pleasing signs in prices of some goods. While the RBA has characterised the disinflation in goods prices as in line with its expectations, it is worth noting that the Bank’s forecasts assume that global goods inflation declines as supply chains recover, but that global goods prices do not fall much in absolute terms. Indeed, the SMP has for the past several quarters briefly outlined a scenario where one-third of the pandemic-era run-up in prices does reverse. In that scenario, inflation returns to target next year, not in 2025. Given that producer price indices are in fact falling in a range of economies, there is a reasonable chance that this downside scenario plays out to some extent. The appreciation in the Australian dollar since the November meeting is also helpful in tempering the material upside risks to domestic inflation with a bit of downside risk around imported price inflation.

The other data released since the November Board meeting have also not provided enough of an upside signal to warrant moving in December. October retail sales were soft; unemployment and underemployment are drifting up as expected; and business surveys are pointing to price pressures easing from high levels. While employment growth was strong in the month, it has been volatile and affected by the rapid cycle in population growth. Measures expressed as ratios, such as the unemployment rate, participation rate and employment-to-population ratio, provide a better signal in these circumstances. These data have been playing out broadly in line with the RBA’s forecasts. Together with the downward revision in the RBA’s wages forecasts, we do not see an upside surprise on inflation – and so a reason for the RBA Board to move again this month – coming from this source.

Ahead of the October CPI release, RBA Governor Bullock had been strengthening the rhetoric about inflation risks. This could be construed as softening the public up for planned future rate increases. A more likely interpretation is that the Governor has been both seeking to explain the rate increase that has already occurred and signalling that further increases would occur if inflation were to decline more slowly than the RBA intends. As we have noted earlier, the RBA has been surprised on the high side by recent inflation data. If the Board really thought that further increases beyond November were a certainty, though, they would not have agreed to changing the language in the November media release, SMP and minutes to read “Whether further tightening of monetary policy is required…”. This was a notable shift from the previous phrasing of “Some further tightening of monetary policy may be required”.

By the time of the February meeting, the RBA will have the full December quarter inflation data as well as the September quarter national accounts and other key data. We reaffirm our view that the RBA Board would raise the cash rate at that meeting if it sees further upside surprises to inflation or fresh evidence suggesting that inflation will decline more slowly than it intends. If things play out broadly in line with their forecasts, though, further moves would be harder to justify. In that case, it would be likely that the RBA would hold the cash rate steady. Currently we believe this is the more likely outcome.

• GBPCHF reversed from resistance level 1.1130
• Likely to fall to support level 1.1050

GBPCHF currency pair recently reversed down from the pivotal resistance level 1.1130, which stopped the previous minor correction 2 at the start of this month, as can be seen below.

The resistance level 1.1130 was strengthened by the upper daily Bollinger Band and by the 50% Fibonacci correction of the previous downtrend from June.

Given the overbought daily Stochastic, strong downtrend and the widespread Swiss franc inflows, GBPCHF currency pair can be expected to fall further to the next support level 1.1050.

• AUDJPY reversed from resistance level 98.40
• Likely to fall to support level 96.00

AUDJPY currency pair recently reversed down from the long-term resistance level 98.40, which stopped the sharp weekly uptrend in the middle of 2022, as can be seen below.

The resistance level 98.40 was further strengthened by the upper weekly Bollinger Band.

Given the strength of the resistance level 98.40 and the overbought weekly Stochastic, AUDJPY currency pair can be expected to fall further to the next support level 96.00.