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Key Highlights

• Gold price gained traction in the past few days and broke the $1,285 resistance against the US Dollar.
• There is a crucial bullish trend line formed with support at $1,288 on the 4-hours chart of XAU/USD.
• The US PPI in Dec 2018 declined 0.2% (MoM), more than the -0.1% forecast.
• The UK CPI report for Dec 2018 will be released today, which could rise 2.1% (YoY).

Gold Price Technical Analysis

In the past few days, there was a steady rise in gold price above the $1,280 resistance against the US Dollar. The price even traded close to the $1,300 level before starting a consolidation pattern.

The 4-hour chart of XAU/USD indicates that the price started a major upward move from the $1,225 swing low. Buyers gained strength and the price settled above the $1,260 and $1,280 resistance levels.

The recent uptrend was such that the price is now trading well above the $1,280 support, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

The price recently traded close to the $1,300 level, which acted as a resistance. At the moment, the price is consolidating with corrective moves. On the downside, there is a crucial bullish trend line formed with support at $1,288 on the 4-hours chart of XAU/USD.

Should there be a break below the trend line, the next support is $1,280 and the 100 SMA. On the flip side, a successful break and close above $1,300 may spark more gains towards the $1,308 and $1,315 levels in the coming days.

Recently, the US Producer Price Index report for Dec 2018 was released by the Bureau of Labor statistics, Department of Labor. The market was looking for a 0.1% decline in the PPI in Dec 2018 compared with the previous month.

However, the result was disappointing as there was 0.2% decline in the PPI. The yearly change was +2.5%, similar to the forecast and the last reading.

Overall, the US Dollar remained in a bearish zone, which may help gold in the near term.

Economic Releases to Watch Today

• German Consumer Price Index for Dec 2018 (YoY) – Forecast +1.7%, versus +1.7% previous.
• German Consumer Price Index for Dec 2018 (MoM) – Forecast +0.1%, versus +0.1% previous.
• UK Consumer Price Index Dec 2018 (YoY) – Forecast +2.1%, versus +2.3% previous.
• UK Core Consumer Price Index Dec 2018 (YoY) – Forecast +1.8%, versus +1.8% previous.
• UK Producer Price Index Dec 2018 (YoY) – Forecast +2.4%, versus +2.4% previous.
• US Import Price Index Dec 2018 (MoM) – Forecast -1.3%, versus -1.6% previous.
• US Export Price Index Dec 2018 (MoM) – Forecast -0.6%, versus -0.9% previous.

STOCKS

We see Nikkei and Shanghai as the best long-term bullish bets among the indices covered, with a willingness to buy on dips. We do not have the same confidence in the Dow and the DAX at the moment. India falls somewhere in the middle of these two sentiment points.

India came in good yesterday itself as the Sensex (36318.33, +464.77 +1.30%) and Nifty (10886.80, +149.20, +1.39%) rose well without dipping towards 35500 and 10650-600 as we had thought they might. The bounce possibly establishes 36000-35500 and 10800-600 as good medium term Supports for the Sensex and Nifty respectively. Beware, however, that the immediate Resistances at 36500 and 11000 respectively need to be broken for proper bullishness to set in.

Although the Dow (24065.59, +155.75, +0.65%) rose again yesterday, we prefer caution while below 24100-500, as that is a formidable Resistance region on the longer term chart. Profit-taking on the 11% rally since 21750 (in less than a month) is a decent possibility.

Resistance at 11000 is still holding on the DAX (10891.79, +35.88, +0.33%) and chance of profit-taking are high in our eyes.

Contrary to our expectation of a dip towards 2500, the Shanghai (2565) rose well to almost 2575 yesterday, trying to break the downtrend since 2825. A rise past 2627 is still needed for the anticipated long-term bullishness to set in good and proper.

The Nikkei (20414) rose to a high of 20571 yesterday but has dipped back a bit today. It remains a buy on dips.

COMMODITIES

Commodities look bearish for the near term apart from the crude prices that has some scope of rising above current levels before resuming the fall.

API data reported a fall in the US Crude supplies by 560,000 barrels for the week ended 11th Jan while the gasoline stockpiles rose by 6mb. The inventory data by EIA is due today but markets expect a fall in the inventory data too.

Crude prices have risen a bit. Brent (60.59) and Nymex WTI (52.01) are trading higher just now. Brent could see a small rise towards 62 before coming off from there back towards 58-56 levels. WTI also has similar resistance near 54 from where a dip is possible in the near term towards 48.

Gold (1289.00) has come down to test immediate support near 1280 and if a bounce from here is seen, we could well see a rise towards 1300-1320 in the near term. On the other hand, a break below 1280 would take the price to lower levels of 1250. Looking at the 3-day line chart, near term looks bearish while resistance at 1300 holds.

Silver (15.61) is also trading below resistance near 16 and could see a decline to 15.25/15.00 in the near term. View is bearish for the next few sessions.

Copper (2.6450) has been coming off, unable to rise past 2.70 at the moment. While the price remains below 2.70, there is scope of some more decline towards 2.60/55 in the near term.

FOREX

Overall currency pairs are mixed. But while there is scope for strength in the US Dollar, major currencies could see a short period of weakness in the near term.

Sharp rise in the Dollar Index (96) seen yesterday to test 96.30 before coming off from there. While above 95.75, Dollar Index looks bullish towards 96.50 in the near term. This could be negative for major currencies in the coming sessions.

Euro (1.1402) is trading lower and could come off towards 1.1350-1.1300 which is a near term support and could produce a bounce back towards 1.15-1.16 in the medium term. On the 3-day chart, 1.16 is a crucial long term resistance and while that holds, trade within 1.16-1.12 is possible for the next 2-3 weeks.

The Euro-Yen (123.66) has dipped lower while earlier support turned resistance near 125 is holding well. Near term looks bearish towards 122.80-122.00 levels which is a long term support on the line charts and could produce a bounce back towards 125.

Dollar Yen (108.48) is trapped in the narrow sideways range of 107.5-109.10 for the last few sessions. A bounce on the upside towards 110-111 is preferred while long term support near 107 holds as seen on the 3-day line chart. Medium to long term view is bullish.

Pound (1.2840) faced slight rejection near 1.2930 from where the currency has dipped to current levels. While below 1.2930, the currency could decline to 1.2750 before resuming a rise back towards 1.30/31 in the longer run.

Aussie (0.7198) has paused near 0.72 instead of rising towards resistance near 0.73. A gradual rise to 0.73 is possible before a sharp decline from there is seen. On the weekly line chart, long term looks bullish towards 0.76 indicating a start of an uptrend.

USD-CNY (6.7683) has decent immediate support at 6.7350 and while that holds, the Chinese Yuan could now set to weaken towards 6.80 or higher in the medium term. View for USDCNY is bullish towards 6.80/85 while above 6.7350. A break below 6.7350 would open up chances of a fresh fall towards 6.68/65 but that looks unlikely just now.

Dollar Rupee (71.0450) closed above 71 yesterday after testing 71.15 on the upside. It would be crucial to watch if the pair manages to break above 71.15 or comes off towards 70.80 today. A break on the upside would turn bullish for Dollar-Rupee for the near term with an upside target of 71.60. We would watch price movement at immediate resistance at 71.15.

INTEREST RATES

US Yields ((2Yr 2.53%, 5Yr 2.53%, 10Yr 2.71% and 30Yr 3.07%) have been overall stable yesterday, with some steepening at the Long end as the 10Yr and 30Yr have moved up by 1bp and 2bp respectively.

Even though Yellen stated yesterday that Fed might be done with its interest rate increases, the market is again pricing in a 14-15% chance of two rate hikes after June.

Indian Yields (10yr GOI 7.4728%) is yo-yoing up and down a bit and has gone up again yesterday, despite the lower inflation readings. We are not being able to synch in well with the market at the moment and may need to step back for a while.

Wall Street buoyed by more China stimulus

Additional stimulus measures out of China aimed at combating slowing growth pushed US indices higher yesterday. PM May’s Brexit deal was wholeheartedly rejected, as expected, and her government will likely face a vote of no confidence in Parliament later today.

US30USD Daily Chart

The US30 index touched the highest level in almost a month yesterday, lifted my better expectations for global growth following the announcement of more stimulus measures by China

The 61.8% Fibonacci retracement of December’s drop is at 24,308, while the 55-day moving average has edged lower to 24,393

Fed’s Kashkari is due to speak later today ahead of the release of the Fed’s Beige Book, a report on the current state of the US economy in the 12 Federal Reserve districts.

DE30EUR Daily Chart

The Germany30 index snapped a two-day losing streak yesterday, closing slightly higher after a volatile trading session

The 55-day moving average at 11,087 remains a significant hurdle to cross in the near term. The index has traded below it since September 28

Consumer prices in Germany for December are expected to show a similar increase to November, rising 0.1% m/m.

CN50USD Daily Chart

China shares popped higher into the close yesterday following the stimulus announcement. China will continue to cut taxes, especially for small businesses and the manufacturing sector, according to a statement distributed to reporters at a PBOC press conference yesterday

The 55- and 100-day moving averages could act as the next resistance points at 10,892 and 11,071, respectively

China has slowly been announcing economic stimulus measures to support the economy, ranging from liquidity measures by the PBOC, enhancing access to cheaper financing for the private sector and tax cuts. However, we are yet to see any concrete signs that these measures have fully worked through to the economy yet.

Energy prices jumped close to 3 percent on Tuesday. Brent gained 2.76 percent and WTI 3.07 percent as China is said to be looking at policies to boost economic growth. The US-China trade war has dented global growth expectations and this move by Chinese authorities is helping energy demand forecasts rise.

Trade data out of China this week was not positive with drops in exports and imports showing a clear impact of US tariffs. Beijing is hoping fiscal stimulus can overcome the stagnation.

OPEC members and other major producers remain committed to a production cut that will last six months. If the US and China can work out their differences the agreement might not extend beyond that period as global growth regains traction.

Wednesday’s weekly crude stock report is expected to show another drawdown in the United States. A drop in inventories and colder for longer weather will boost oil prices.

Gold fell 0.16 percent on Tuesday. The Brexit drama failed to spark investor’s appetite in the yellow metal as the failure of Prime Minister’s May’s proposal was foretold. The vote ending being as one sided as predicted and will move the uncertainty to next week. On Monday she has to present a new proposal but given the short time line there might not be enough time for anything new. Labour’s no vote confidence is not expected to have the backing of the MPs needed which could trigger higher demand in the yellow metal as investors seek refuge from the uncertainty surrounding the UK divorce from the EU.

Fed members have several statements clearly outlining that a pause in the central bank’s monetary policy tightening. The gold will feel less downward pressure, but disappointing inflation data offers no support at this stage.

The fiscal stimulus announcement out of China sparked gains in risker assets given the Brexit vote outcome provided no surprises. Trade talks between US and China, Brexit headlines and the extended US government shutdown will keep gold in the minds of investors that will seek the metal for safe haven if risk appetite dries up.

Next on the checklist, a vote of no confidence in the government There's been plenty of speculation about just how heavy a defeat May will face when the Brexit deal comes before parliament and it was just as devastating as many had feared.

While the “meaningful vote” was in many ways meaningless, the defeat – at least symbolically – was crushing for May's deal. This was more actually nothing more than a necessary exercise that will now accelerate the process and allow other options for parliament to be explored, including a vote of no confidence in the government that was quickly tabled by the opposition Labour party after the defeat.

This also looks unlikely to succeed without the support of the DUP, which continues to support the Conservative party, but again this is a necessary exercise that ticks another box and allows for a second referendum to gain momentum. It's no surprise then that the EU has not changed its position on the exit deal as a referendum or withdrawal of article 50 is clearly in its best interest, especially when parliament is so determined to kill no deal as an option, the only scenario that actually strikes fear in Brussels.

We have no entered into a process when all other feasible options can be explored before a deal – May's or otherwise – returns to the house in what will actually be the meaningful vote that was promised. Until then, we can expect plenty of brinkmanship on both sides as they look to secure the upper hand which only adds to the uncertainty and ensures investors don't rest.

We've seen plenty of volatility in the pound today, both ahead of the vote and in the immediate aftermath of it. The end result has been that it is pretty much back where it started the day against the dollar. This highlights just how uncertain the process remains and how little has been achieved with the vite today.

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Euro is apparently knocked down by ECB President Mario Draghi's downbeat comments. He told the European Parliament today that the Eurozone economy is weakening more than expected.

Thus, "a significant amount of monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term,"

Draghi added that "Our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of assets we have acquired, continues to provide the necessary degree of monetary accommodation."

Gold is almost unchanged in the Tuesday session. In North American trade, the spot price for one ounce of gold is $1291.18, down 0.02% on the day. In economic news, inflation indicators missed their estimates. PPI declined by 0.2%, missing the forecast of -0.1%. This was the weakest reading since July 2016. Core PPI dropped by 0.1%, shy of the estimate of 0.2%. There was no relief from the manufacturing sector, as the Empire State Manufacturing Index plunged to 3.9 points, down from 10.9 points a month earlier, and short of the estimate of 11.6 points.

After an aggressive 2018, the Federal Reserve is expected to ease up on rate policy this year. However, it’s not at all clear what to expect from the Fed in 2019. There is a large discrepancy between Fed forecasts and market expectations, which could result in volatility in the currency markets. The most recent projections from individual policymakers in the Federal Open Market Committee (FOMC) stands at two rate hikes this year, but the markets are expecting the Fed to hold pat and not raise rates in 2019. Moreover, the markets have priced in a rate cut before the end of the year at 28 percent. On Monday, former Fed Chair Janet Yellen said that she expected the Fed to take a breather, saying that it’s ‘very possible’ that the Fed has made its last hike of this cycle.

Risk appetite has improved in January, but a weaker Chinese economy could spook investors. On Monday, China released unexpectedly soft data, with exports down 4.4 percent from a year earlier and imports plunging 7.6 percent. The slowdown in China has taken a toll on corporate profits, with Apple and Jaguar Land Rover posting revenue warnings. Further signs of a slowdown from the world’s second largest economy could raise risk apprehension and bolster safe-haven gold.

USD/JPY has edged higher in the Tuesday session, recovering most of the losses seen on Monday. In the North American session, the pair is trading at 108.47, up 0.29% on the day. In economic news, Japanese Preliminary Machine Tool Orders posted a third successive decline, with a reading of -18.3%. Later in the day, BoJ Governor Kuroda will deliver a speech at the G-20 symposium in Tokyo, which should be treated as a market-mover. In the U.S., producer inflation declined in December, as PPI and Core PPI both missed their estimates.

The yen started the New Year with strong gains, but the rally has taken a pause, as risk apprehension has subsided. Is this the calm before the storm? China released soft data on Monday, as the world’s second largest economy continues to show signs of a slowdown. Chinese exports down 4.4 percent from a year earlier and imports plunging 7.6 percent. A decline in China could send the Japanese economy into recession, as the export and manufacturing sectors are heavily dependent on Chinese demand.

The Federal Reserve has made a U-turn on monetary policy, but by how much? There is a large discrepancy between Fed forecasts and market expectations, which could result in volatility in the currency markets, as traders try to figure out what the Fed will do in 2019. The most recent projections from individual policymakers in the Federal Open Market Committee (FOMC) stands at two rate hikes this year, but the markets are expecting the Fed to hold pat and not raise rates in 2019. Moreover, the markets have priced in a rate cut before the end of the year at 28 percent. On Monday, former Fed Chair Janet Yellen said that she expected the Fed to take a breather, saying that it’s ‘very possible’ that the Fed has made its last hike of this cycle.