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Elliott wave view in Gold suggests that rally from August 16, 2018 low ($1160.37) is unfolding as an Elliott Wave Impulse structure. Rally to $1326.53 ended wave (3). Wave (4) pullback is in progress as a double three Elliott Wave structure. Down from $1326.53, wave W ended at $1302.4 and wave X ended at $1318.17. Internal of wave W takes the form of a zigzag Elliott Wave structure. Wave ((a)) of W ended at $1308.40, wave ((b)) of W ended at $1316.9, and wave ((c)) of W ended at $1302.40.

Internal of wave X takes the form of a double three Elliott Wave of a lesser degree. Wave ((w)) of X ended at $1315.63, wave ((x)) of X ended at $1303.4, and wave ((y)) of X ended at $1318.17. Wave Y is proposed to take the form of a zigzag Elliottwave structure where wave ((a)) ended at $1304.90. Near term, while wave ((b)) bounce stays below $1326.53, expect another leg lower to $1288.28 – $1293.98 in wave ((c)). This move lower should also end wave Y of (4). Expect buyers should appear in this area for new high in wave (5) or at least a 3 waves bounce. We do not like selling Gold.

Gold 1 Hour Elliott Wave Chart

January trade data from China showed a better picture. Exports grew 9.1% yoy versus expectation of -3.3% yoy. Import dropped only -1.5% yoy versus expectation of -10.2% yoy. Trade surplus narrowed to USD 39.2B, above expectation of USD 32.0B. However, it should be noted that the trade data for the first two months of the year are generally distorted by Lunar New Year holidays. Thus, while the data are positive, it's premature to declare that the slow down in China has bottomed. Nevertheless, it's worth noting that exports to the US since tariff war began were not so much affected. But import from the US plunged, quite notably in Jan by -41%.

In USD terms:

• Total trade rose 4.0% yoy to USD 396B.
• Import dropped -1.5% yoy to USD 178.4B.
• Exports rose 9.1% yoy to USD 217.6B.
• Trade surplus rose to USD 39.2B.

With EU:

• Total trade rose 12.4% yoy to USD 64.5B.
• Import rose 8.2% yoy to 25.9B.
• Export rose 15.3% yoy to USD 38.6B.
• Trade surplus was at USD 12.7B.

With US

• Total trade dropped -13.9% yoy to USD 45.8B.
• Import dropped -41% yoy to USD 9.2B.
• Exports dropped -2.4% yoy to USD 36.5B.
• Trade surplus was at USD 27.3B.

With AU

• Total trade rose 10.8% yoy to USD 14.4B.
• Import rose 7.6% yoy USD 10.1B.
• Export rose 19.1% yoy to USD 4.3B.
• Trade deficit was at USD 5.8B.

Full country breakdown here in simplified Chinese.

UK RICS house price balanced dropped to -22 in January, below expectation of -20. RBIC noted that activity measures for both buyers and sellers continue to slip. Also, price balance weakens at the national level, led by London and the South East. And, as sales drop, the lettings market is faring better with demand rising.

Simon Rubinsohn, RICS chief economist, warned that "resolution of the Brexit negotiations is widely seen as critical to encouraging potential buyers back into the market, although whether that will be sufficient in London and parts of the South East where affordability remains stretched and the tax changes are most penal remains to be seen."

Full release here.

Japan GDP grew 0.3% qoq in Q3, rebounding from Q3's -0.6% qoq contraction. The good news is that Japan avoided a technical recession of two consecutive quarters of contraction. But growth was disappointing and missed expectation of 0.4% qoq. GDP deflator dropped -0.3% yoy, slightly better than expectation of -0.4% yoy.

Japanese Economy Minister Toshimitsu Motegi said in a statement that "the economy is in gradual recovery as growth is led by private demand". However, "China-bound exports of information-related materials have weakened as the Chinese economy slowed". He added that the government needs to "monitor uncertainty over global economic outlook including Chinese economy as well as fluctuations in financial markets."

High level US-China trade negotiations started in the Diaoyutai state guest house in Beijing today, involving US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer, and Chinese Vice Premier Liu He. Ahead of that, Mnuchin said he's "looking forward to discussions today". There was no elaborate and so far, there is no news leaked regarding the talks.

Trump indicated earlier this week that he's willing to let the March 1 trade truce deadline slide a little bit. Trump further added that the talks are "going along very well" and the Chinese are "showing us tremendous respect." Bloomberg reported that Trump is indeed considering to extend the deadline by 60 days, after rejecting the initial request by China of 90 days extension. But the rumor is not confirmed.

Yen trades generally lower on the news while Australian Dollar strengthens. But reactions from the stock markets are rather muted. Currently, Hong Kong HSI is down -0.4% and China SSE is down -0.04%.

New Zealand gives US dollar birds

The sell-off in the US dollar (USD) fizzled as fast as it began overnight, strengthening across the board after positive noises from the trade talks in Beijing. President Trump indicated he would give China more time to complete a deal if necessary as long as progress had been made. US government shut-down fears receded with Trump indicating that not putting another brick in the wall wasn’t a deal breaker.

As the USD marched inexorably higher, the exception was the New Zealand Dollar. The Kiwi (a flightless bird) consolidated its gains against the USD overnight and the Aussie dollar is following the Reserve Bank of New Zealand’s (RBNZ) refusal to follow the central bank’s party line and turn dovish.

US stock-markets went about their work quietly, rising around 0.50% with the S&P notably holding above its 200-day moving average, on much the same news as the USD. We expect a similar story in Asia this morning with indices tracking the S&P gains higher and regional currencies easing against the USD.

In terms of data, Japan’s GDP will be released today and is expected to rise by 1.20%. Its effects will only be transitory though as there are bigger stories to consider. Things will get more interesting in Europe with the release of Eurozone and German GDPs, with Europe’s industrial bell-weather expected to post a 0.80% gain. With the euro giving back much of its previous day’s gains overnight, a poor read could see sellers of the single currency return with renewed vigour.

FX

You can’t keep a good dollar down, be it the US or New Zealand’s it seems. Both have rallied vigorously overnight, perhaps highlighting the importance of short-term yields on sentiment (both have them). The market will remain highly sensitive to any headlines from the trade talks and therefore, so will both dollars.

USDJPY pushed higher to 111.00 with its eyes on the next significant resistance at 111.50. Sterling (GBP) fell 100 points from its highs overnight to 1.2850 this morning, with a break of the 1.2825 zone opening up a more substantial move down. The euro gave up all of its previous day’s gains to limp in at 1.1260 today. 1.1200 is looming as a must-hold support zone.

AUDNZD collapsed yesterday following the RBNZ, and the cross trades at 1.0425 this morning ahead of important support at 1.0400. Sentiment should keep up pressure on the pair, however traders would be wise to avoid extreme pessimism or talk of parity. Selling AUDNZD below 1.0300 has often ended in tears over the last 20 years. It’s unlikely this will change.

Stocks

We expect Asian markets to track North America gently higher this morning. Stocks in particular though will be susceptible to news headlines out of Washington or Beijing, whether good or bad. Traders should remain nimble in such a fragile sentiment environment.

Gold

We saw a peaceful night for gold as it remains anchored around 1,310.00 awaiting clarity in the bigger geopolitical picture.

Oil

Oil shrugged of higher-than-expected US inventory figures overnight with both Brent and WTI posting 1.80% gains. Oil was boosted by positive trade talk news allaying global growth fears, lowered OPEC production and the US warning countries not to buy Venezuelan oil. US National Security Advisor John R Bolton has warned countries who ignore the sanctions, “Won’t be forgotten.”

All of this has given a very constructive look to both contracts from a technical perspective with both Brent and WTI poised for higher gains. One cautionary note is they are also vulnerable to news headlines, good or bad.

STOCKS

Barring the Indian indices, the major global indices are continuing to move up. While the Indian equities look vulnerable for further fall, the global indices can continue to move higher in the near term.

Dow Jones (25,543.27, +117.51, +0.46%) retains its strength and risen breaking above the intermediate resistance at 25,450. As mentioned yesterday, Dow can rally towards 35,700 and 25,800 in the coming days.

DAX (11,167.22, +41.14, +0.37%) sustains higher but seems to lack momentum. However, while DAX remains above 11,100-11,050 support zone, the outlook is positive to see a rally towards 11,300.

Nikkei (21,155.44, +10.96, +0.052%) broken above 21,000 decisively and will gear-up for a test of 21,500 and 21,750 in the coming days.

Shanghai (2,712.83, -8.23, -0.30%) is gaining strength as it has risen above 2,700 and is likely to test 2,750 in the coming sessions.

Sensex (36,034.11, -119.51, -0.33%) and the Nifty 50 (10,793.65 -37.75 -0.35%) witnessed late selling yesterday. The bearish outlook is intact. Sensex can fall to 35,800 and the Nifty 50 can test 10,700 in the coming sessions.

COMMODITIES

Gold continues to remain stable within the expected sideways range while silver looks little weak in the near term. Copper still has room for a corrective fall before the overall uptrend resumes. Oil is heading towards its key resistance which if it holds or not will decide the next move.

Gold (1,308) oscillates between 1,300 and 1,325 as expected. While above 1,300 the bias remains positive for a break above 1,325 and a rise to 1,350-1,360.

Silver (15.61) seems to be little weaker than gold. The support at 15.55 is holdiing well as of now. While above 15.55, a bounce to 15.8 is possible in the near term. But a break below 15.55 can drag silver lower to 15.4 and 15.2.

Copper (2.77) remains weak and has declined below 2.78 as expected. As being mentioned over the last few days, a dip to 2.76 and 2.75 is likely in the coming days.

Brent (63.90) has crucial resistances at 64 and 64.3. A strong break above 64.3 will open doors for a test of 66 in the short term. But while below 64.3, a pull-back to 62 cannot be ruled out. WTI (54.10) on the other hand, can move up to 55.5 on a break above 54.5.

FOREX

Contrary to our expectation of a falling Dollar-Index, we saw a rise back to levels above 97. This has erased some gains seen on the major currencies over the last few sessions. While the currencies could again see some weakness against the US Dollar in the rest of the sessions this week, we look for crucial resistance near 98 on Dollar Index to hold in the medium term.

Dollar-Index (97.12) surprised with a bounce back to levels above 97 contrary to our expectation of heading lower towards 96.30/25. The rise came in after CPI inflation for Jan’19 came in at 0% M/M from Dec fig of -0.1%, rising at an annualized 1.6%. . Core CPI came in at 0.2% (M/M), and 2.2% (Y/Y). While the Dollar Index trades above 97, further upmove is possible towards 97.50-98.00 levels.

Euro (1.1271) also came off to levels below 1.13, contrary to our expectation of a continued rise towards 1.14. If the fall below 1.13 sustains, we could possibly see a gradual fall towards 1.12 soon. The fall in Euro was indicated by a lower German-US yield differential (mentioned in the interest rates section yesterday) and while the differential trades lower, Euro could be bearish.

Euro-Yen (125.08) is trading within the 124-126 region and could remain so for the medium term. While there is some scope of testing 126 on the upside, while the Euro trades below 1.13, Euro-Yen could possibly come off in the near term towards 124.

Dollar Yen (110.97) could be headed towards 111.50 in the near term. Near term view is bullish while the pair trades above 110.50.

Pound (1.2857) and Aussie (0.7108) have come off slightly from levels seen yesterday on fresh rise in the US Dollar. It would be important to see if Pound remains above immediate support at 1.2830 or breaks lower to target levels of 1.2750-1.2700 again. On the other hand, Aussie could trade in the 0.7150-0.7050 region for a few sessions.

USDCNY (6.7656) moved up instead of falling further towards 6.7350 mentioned yesterday. The pair is holding within a down channel as seen on the daily candles and while the channel holds, USDCNY could remain below 6.78, eventually falling towards 6.74/72.

Dollar Rupee (70.8050) could possibly move up today further towards 70.90-71.00 on fresh strength in the US Dollar. However, while below 71, we could still expect a possible fall towards 70.60 again eventually. Weekly line charts show support near 70.40 which has held so far and could keep the pair higher for some more sessions.

INTEREST RATES

A rise in CPI inflation data has lead to a rise in yields along with the rise in the US Dollar. The US yields have moved up as expected. The 2Yr (2.53%) and the 5Yr (2.52%) yield have risen by 1bps while the 10Yr (2.70%) and 30Yr (3.03%) are stable. As mentioned yesterday the 5Yr can rise to 2.54% by tomorrow while the 10Yr and 30Yr could also move up to 2.73% and 3.06% respectively. Near term looks bullish for the US Yields.

The German-US 2Yr differential (-3.09%) has come down as expected bringing down Euro also with it. The differential could test -3.10% from where a short bounce could be expected. A break below -3.105 could indicate further fall for the medium term indicating continued bearishness for the Euro. The German-US 10Yr (-2.57%) could fall towards -2.60/625 in the near term before pausing within the current fall.

The 10Yr GOI (7.466%) fell to test 7.43% yesterday almost in line with our expectation. While support near 7.38/40% holds, we could see a rise towards 7.55/60% again in the medium term.

Key Highlights

• Gold price tested the $1,300 support area and later started consolidation against the US Dollar.
• There is a breakout pattern formed with resistance at $1,314 on the 4-hours chart of XAU/USD.
• The US CPI posted no change in Jan 2019 (MoM), whereas the market was looking for a 0.1% rise.
• The US Retail Sales for Dec 2018 will be released today, which could increase 0.2% (MoM).

Gold Price Technical Analysis

After a significant upward move, gold price topped near the $1,325 level against the US Dollar. The price corrected below the $1,320 and $1,310 support levels before buyers appeared near $1,300.

The 4-hour chart of XAU/USD indicates that the price traded as low as $1,302 and later started consolidating in a broad range. It recovered above the $1,310 level and the 38.2% Fib retracement level of the recent decline from the $1,326 high to $1,302 low.

However, the recovery was capped by the $1,315 resistance and the 50% Fib retracement level of the recent decline from the $1,326 high to $1,302 low.

The price started traded in a broad range below the $1,315 resistance and above the $1,300 support. More importantly, there is a breakout pattern formed with resistance at $1,314. If buyers gain strength above $1,314 and $1,315, there could be a bullish continuation towards $1,325.

On the other hand, if there is a downside break below the $1,302 support and the 100 simple moving average (red, 4-hours), then there could be an extended correction towards the $1,295 or $1,290 support level.

Recently, the US Consumer Price Index report for Jan 2019 was released by the US Bureau of Labor Statistics. The market was looking for a 0.1% rise in the US CPI in Jan 2019 compared with the previous month.

However, the result was lower than the forecast as there was no change in the US CPI. On the positive side, the last reading was revised up from -0.1% to 0.0%. Looking at the yearly change, there was a 1.6% increase in the CPI, better than the 1.5% forecast, but less than the 1.9% last.

The report added:

The energy index declined for the third consecutive month, offsetting increases in the indexes for all items less food and energy and for food. All the major energy component indexes declined in January, with the gasoline index falling 5.5 percent. The food index increased 0.2 percent, with the index for food at home rising 0.1 percent and the food away from home index increasing 0.3 percent.

Overall, gold price seems to be preparing the next break, while major pairs like EUR/USD, GBP/USD and AUD/USD remain under bearish pressure.

Economic Releases to Watch Today

• German Gross Domestic Product for Q4 2018 (YoY) (Preliminary) – Forecast 0.7%, versus 1.1% previous.
• German Gross Domestic Product for Q4 2018 (QoQ) (Preliminary) – Forecast 0.1%, versus -0.2% previous.
• Euro Zone Gross Domestic Product Q4 2018 (Preliminary) (QoQ) – Forecast 0.2%, versus 0.2% previous.
• US Retail Sales Dec 2018 (MoM) – Forecast +0.2%, versus +0.2% previous.

Wall Street buoyed by trade talk progress

Wall Street was lifted by positive comments about pre-meeting trade discussions between US and China. The talks officially start today. Japan’s Q4 GDP came in as expected, rebounding from Q3’s contraction.

US30USD Daily Chart

The US30 index hit the highest since December 4 yesterday before edging off into the close. Progress in the US-China trade discussions, which officially start today in Beijing, supported the upmove

The index has yet to test the 78.6% Fibonacci retracement of the October-December drop at 25,768. The 200-day moving average is at 25,038

US retail sales are seen rising 0.2% m/m in December, the same pace as in November, according to recent surveys.

DE30EUR Daily Chart

The Germany30 index rose for a third day yesterday, taking its cue from sentiment on Wall Street

The index is edged closer toward the 100-day moving average at 11,305

Germany’s Q4 GDP growth is expected to slow to +0.7% y/y from +1.1% in Q3, latest surveys show. A more marked slowdown would be negative for the index.

JP225USD Daily Chart

The Japan225 index hit the highest in almost two month this morning, encouraged by the uptick in Japan’s GDP in Q4 and the positive close on Wall Street

The index is rising toward the 100-day moving average at 21,586, which has capped prices since December 4

The Japanese economy expanded 1.4% y/y in the fourth quarter of 2018, as expected, snapping the run of two quarters of negative growth.

The US dollar is higher against most major pairs on Wednesday. The New Zealand dollar is the outlier as it appreciated 0.91 percent after the Reserve Bank of New Zealand (RBNZ) kept rates unchanged as expected at 1.75 percent on Tuesday but was not as dovish adopting a neutral stance.

US inflation data came in close to forecast. The Fed has put the brakes on its tightening of monetary policy but after strong employment data and solid inflation indicators the market could start pricing in a rate hike in the summer. Fed members have kept their comments neutral but as more evidence of strong growth, the central bank could change its tune.

Signs of an economic slowdown in Europe and China are showing that the US economy remains the engine of global growth. Political uncertainty has limited the rise of the US dollar, but this week could be a breakthrough as trade talks with China and an agreement to avoid a government shutdown are on the table.

Oil prices rose despite a higher than expected buildup of US crude stocks on Wednesday. Oil inventories jumped 3.6 million barrels versus he forecasted 2 million. It is no secret that US production is ramping up, but external factors kept crude from falling. OPEC production cut compliance and positive comments on US-China trade with a deal on the table to avoid a government shutdown in Washington.

Although current trade talks might not end in a major breakthrough it has brought the two largest economies closer to a deal. US President Trump is now expected to meet with President Xi in mid-March. The 90-day truce agreed in December will run out on March 1 but given the progress of the talks there could be an extension, which is why there are rising optimism that the two leaders will meet later that month.

An extension on the trade cease fire with the possibility of an upcoming agreement could put global growth back on track after several agencies downgraded their forecasts impacting energy demand.

Gold fell 0.37 percent on Wednesday. US inflation remains steady keeping the Fed rate hikes on pause, but positive developments in geopolitics favoured the US dollar over the yellow metal. As the deadline on the US-China approaches an extension might be in the works as US Secretary Mnuchin and Trade Representative Lighthizer are in Beijing for next level trade talks. The timeline could be stretched if progress is made so that Presidents Xi and Trump could meet if there is a major announcement to be made.

Gold remains above $1,300 but as the government shutdown and US-China trade talks appear headed to bear fruit this week it could push the metal below that price level. Risk events remain on the table in the short term which could limit the fall in gold prices as President Trump has not signed the Border bill, and there are few details on what to expect from the US-China trade meeting.

Trade talk optimism boosted global exchanges on Wednesday. An extension to the March 1 deadline appears to be in the works although there have been little in the way of details if any progress has been made during the talks. A meeting between the Presidents of China and the US could happen in mid-March.

An agreement by Democrats and Republicans is being reviewed by President Trump, that if signed would avoid another government shutdown. The decline in risk sentiment has been a positive for global markets. There are still issues to sort out and Trump is said to be reviewing it, and while not completely happy with the border wall funding, he might sign it to avoid a shutdown.