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Gold price edged lower in early trading on Tuesday, following Monday’s limited consolidation of nearly 4% drop on Friday.

Near-term outlook remains bearishly aligned after a massive loss last Friday, sparked by strong US jobs data and reports that China’s central bank paused gold purchases in May.

Markets shift focus towards this week’s key events, release of US inflation data and Fed rate decision, both due on Wednesday, with expectations that consumer prices would barely ease, although may cause increased volatility on Wednesday, in case May figure diverges from forecasted levels.

The US central bank does not have much space to maneuver, particularly after much higher May payrolls almost removed expectations for first rate cut in September from the table, with growing signals that the Fed would stay on hold until November.

This will be a negative scenario for gold and would further increase pressure on metal’s price in the near-term, allowing for deeper correction of $1984/$2450 bull-leg.

Technical picture on daily chart is weakening, with initial bearish signals generated on penetration and repeated close within thick daily cloud, negative momentum and MA’s (10/20/55) in bearish setup and forming bear-crosses.

However, oversold stochastic on daily chart may produce headwinds to bears, approaching pivotal Fibo support at $2272 (38.2% retracement of $1984/$2450).

Near-term action is likely to stay in extended consolidation and a quiet mode until Wednesday’s releases, ideally to be capped by daily cloud top ($2322) and not to exceed daily Tenkan-sen ($2337) to maintain bearish near-term bias.

Firm break of $2277/72 pivot, to further weaken near-term structure and expose targets at $2228/17 (daily cloud base / 50% retracement).

Conversely, violation of Tenkan-sen line ($2337) would ease bearish pressure, but sustained break above daily Kijun-sen ($2368) required to neutralize bears.

Res: 2322; 2337; 2359; 2368.
Sup: 2286; 2272; 2228; 2217.

Market Picture

The cryptocurrency market spent Monday in a very narrow range but started Tuesday with a violent sell-off, losing over 2.8% in 24 hours to $2.47 trillion. Bitcoin is retreating at the same pace as the market as a whole, while Ethereum is down 3.5%. Top altcoins are losing between 2% (Cardano) and 6.6% (BNB), and Tron is temporarily standing out from the crowd, adding 0.25%. This wariness of cryptocurrency traders may be a manifestation of the downturn in risk appetite in global markets, which may soon establish itself in the dynamics of equities and commodities.

Bitcoin has pulled back to $67.6K, returning to the local lows at the beginning of the month. This decisive move downward indicates that a deeper correction is in store. We can see just how strong the bearish sentiment is by the first cryptocurrency’s momentum near $65K, an intermediate round level near where the 50-day moving average and 76.4% Fibonacci retracement level of the rally from the January lows lie. A quick dip below would force a search for support no sooner than $60K.

Cardano, whose relative performance is better than its peers, is in a rather vulnerable position in the medium term, testing support for the past two months at $0.43. It is currently trading in the lower half of the range from the October lows, under the 200- and 50-day moving averages. A failure of support potentially opens the way down to $0.38 or even $0.25.

News background

According to CoinShares, crypto fund investments rose by a record $2.038bn last week, after inflows of $185m a week earlier; the figure marks the fifth consecutive week of growth. Bitcoin investments increased by $1.973bn, Ethereum by $69m and Solana by $0.7m.

The total assets under management (AUM) of all spot bitcoin funds is about $61.1bn. In five months, BTC-ETFs have accumulated 60% of the AUM of gold investment products ($105bn) that have been around for more than 20 years.

Weekly trading volumes for the week rose 55% to $12.8bn.

The market recorded a new record high in short hedge fund positions in bitcoin, indicating a significant change in sentiment among investors, according to the financial portal Zerohedge. Bearish hedge fund positions negatively affect the sentiment of other market participants and lead to increased volatility.

According to a study by the Bank of New York Mellon, family wealth managers are willing to allocate about 5% of their investment portfolio to cryptocurrencies. The main factors preventing this are hacker attacks and cybercrime.

The total blocked value of assets (TVL) in the Ethereum-based Tier 2 Base network is over $8bn, surpassing OP Mainnet from the Optimism team. The protocol from Coinbase is now the second largest Ethereum scaling solution, behind only Arbitrum One with $18.27bn.

The team of Notcoin, a Web3 gaming project, reported that its user base has grown to 40 million people. According to the developers’ calculations, players have already earned $1.5 million in TON through 20 campaigns. The team expects this figure to grow tenfold after automating new missions that third-party projects will be able to launch independently.

ECB Governing Council member Francois Villeroy de Galhau highlighted today at a conference that month-to-month inflation data will be volatile due to base effects, particularly related to energy prices.

He cautioned that this "noise" in the data is not very meaningful, and the ECB remains "outlook driven" and will focus more closely on inflation forecasts.

Villeroy expressed confidence that, barring any external shocks, ECB will bring inflation back to its 2% target by next year, achieving this with a "soft rather than a hard landing."

He reiterated the need for a gradual approach to future rate adjustments and emphasized that ECB has "significant leeway" to cut rates before monetary policy becomes restrictive.

Daily Pivots: (S1) 199.22; (P) 199.64; (R1) 200.33; More...

GBP/JPY is staying in range below 200.72 and intraday bias stays neutral. On the downside, break of 197.28 will strengthen the case that rise from 191.34 has completed. Intraday bias will be back on the downside for 195.02 support first. However, decisive break of 200.72 will resume larger uptrend instead.

In the bigger picture, as long as 188.63 resistance turned support holds, long term up trend is expected to continue. Sustained trading above 200.53 will pave the way to 100% projection of 155.33 to 188.63 from 178.32 at 211.62.

Daily Pivots: (S1) 168.50; (P) 168.86; (R1) 169.42; More...

Range trading continues in EUR/JPY and intraday bias stays neutral. On the downside, break of 168.01 support will strengthen the case that rise from 164.31 has completed at 170.78 already. Intraday bias will be back on the downside for 167.31 support, and then 164.01. Nevertheless, break of 170.87 will resume the rally to retest 171.58 high instead.

In the bigger picture, a medium top was formed at 171.58 after brief breach of 169.96 (2008 high). But as long as 55 W EMA (now at 159.51) holds, price actions from there is seen as correcting the rise from 153.15 only. That is, larger up trend remains in favor to continue. However, sustained break of 55 W EMA will argue that larger scale correction is underway and target 153.15 support.

Daily Pivots: (S1) 0.8440; (P) 0.8456; (R1) 0.8472; More...

Intraday bias in EUR/GBP stays on the downside at this point. Current down trend should target 0.8376 projection level next. On the upside, above 0.8482 support turned resistance will turn intraday bias neutral and bring consolidations first, before staging another decline.

In the bigger picture, down trend from 0.9267 (2022 high is in progress). Next target is 100% projection of 0.8764 to 0.8497 from 0.8643 at 0.8376. Sustained break there will target 161.8% projection at 0.8211 next. For now, outlook will remain bearish as long as 0.8643 resistance holds, even in case of stronger rebound.

Daily Pivots: (S1) 1.6235; (P) 1.6311; (R1) 1.6362; More...

Intraday bias in EUR/AUD stays neutral as range trading continues. On the downside, firm break of 1.6211 support will resume the whole decline from 1.6742, as the third leg of the correction from 1.7062. On the upside, sustained break of 55 D EMA (now at 1.6381) will resume the rebound from 1.6211 instead.

In the bigger picture, fall from 1.7062 medium term top is seen as a correction to the up trend from 1.4281 (2022 low). In case of deeper fall, strong support is expected around 1.5846 and 38.2% retracement of 1.4281 to 1.7062 at 1.6000 to bring rebound. Break of 1.7062 is in favor as a later stage.

Daily Pivots: (S1) 0.9622; (P) 0.9656; (R1) 0.9686; More....

Intraday bias in EUR/CHF stays on the downside at this point. Deeper fall would be seen to 0.9563 support. Decisive break there will argue that whole rise from 0.9252 has completed, and bring deeper fall to 61.8% retracement of 0.9252 to 0.9928 at 0.9510. On the upside, above 0.9720 minor resistance will turn intraday bias neutral first.

In the bigger picture, as long as 0.9563 support holds, rise from 0.9252 medium term bottom is still in favor to continue. Next target is 38.2% retracement of 1.2004 (2018 high) to 0.9252 (2023 low) at 1.0303, even just as a correction to the down trend from 1.2004. However, firm break of 0.9563 will suggest that the rally has completed and retain medium term bearishness.

• GBPUSD advances to its highest level since March 13
• But then reverses lower as rally got overstretched
• Momentum indicators ease but remain in positive zones

GBPUSD has been in a steady recovery following its bounce off the 2024 bottom of 1.2298, with the price violating both the 50- and 200-day simple moving averages (SMAs). In the near term, although the pair surged to an almost three-month high, it sustained some losses probably due to some profit taking.

Should the pullback extend, the recent support of 1.2669 could act as the first line of defence. Further retreats could cease around 1.2598, a region that held strong both in January and March. Sliding beneath that floor, the price could descend towards the February bottom of 1.2517.

If the bulls manage to erase the latest setback, immediate resistance could be found at the 1.2816-1.2826 range, defined by the most recent peak and the December 2023 high. A violation of that region could set the stage for the 2024 peak of 1.2892. Failing to halt there, the pair could storm towards the July 2023 resistance of 1.2994.

Overall, GBPUSD climbed to an almost three-month high last week before paring some gains. Nevertheless, a break below the 50-day SMA is needed for the short-term outlook to turn bearish. 

Markets

It’s telling that core bonds do not gain when markets are in risk-off. German bunds underperformed US Treasuries yesterday with a political risk premium boosting yields between 0.2 (2-yr) and 6.8 bps (30-yr) higher. Far-right advanced (sharply) in the European parliamentary elections in many countries including Germany, Italy and France. In a direct consequence, the president of the latter announced snap parliamentary elections. It’s bound to keep political uncertainty lingering for the time being. Sovereign risk premia vs Germany’s 10-yr yield rose across the bloc with France underperforming peripheral countries. The euro didn’t forget about the 2012 debt/political crisis and proved very vulnerable. EUR/USD slipped below the 1.08 big figure to close at 1.0765. That’s off the intraday lows of 1.0733 though. EUR/GBP since mid-May hovered close to but above 0.85. Sterling lacked the strength for a sustained break lower but a weak euro yesterday eventually took care of it. The combo closed at the lowest level since August 2022 (0.8456). US yields added up to 4.3 bps at the long end of the curve. Yesterday’s $58 bn 3-yr auction raises the stakes for tonight’s $39bn 10-yr and Thursday’s $22bn 30-yr ones. Investor demand was mediocre at best with a below-average 2.43 bid-to-cover and the highest dealer takedown since December. The auction carried a 1.1 bp tail. European bourses ceded ground with the French CAC40 the obvious underperformer (-1.35%). Wall Street gapped lower at the open but managed to close in the green after recovering throughout the session.

In between this morning’s UK labour market report and tonight’s US auction, markets will probably trade cautious and without a clear direction ahead of the Fed policy meeting on Wednesday. We expect a solid floor under core/European bond yields. ECB’s Lagarde in an op-ed published this morning clearly stated one should not expect rate cuts at a predetermined pace. She didn’t exclude the possibility of having multiple meetings between one rate cut and another and vowed to keep policy restrictive (= policy rate above an increased (?!) neutral rate) for as long as needed. The British labour market data were mixed. Employment in the three months to April dropped a bigger-than-expected 139k after an already weak March number. The unemployment rate ticked higher to 4.4% vs 4.3% expected. Wage growth remained sticky but the gauge that excludes bonusses at least didn’t surprise to the upside this time around (6%). The figure including bonusses, however, did come in at a higher-than-expected 5.9%, matching the previous month’s upwardly revised figure. After falling of a cliff yesterday, EUR/GBP is recovering marginally to 0.846. We don’t think the move has strong legs though.

News & Views

The NY Fed’s May survey of consumer expectations were a mixed bag. They showed short-term inflation expectations (1-yr) declining slightly (3.3% to 3.2%) while remaining unchanged at the 3-yr horizon (2.8%) and rising from 2.8% to 3% on the 5-yr tenor. Labor market expectations were miscellaneous. Interestingly, households’ expectations for the stock market improved to a 3-yr high with households becoming also more optimistic about their financial situation a year from now. The share of respondents expecting to be financially the same or better off 12 months from now is 78.1%, the highest level since June 2021. Median expected growth in household income increased from 3%to 3.1%. Perceptions of credit access compared to a year ago were largely unchanged, while expectations about future credit access deteriorated.

Mexican president-elect Sheinbaum vowed to push through with proposed judicial reforms proposed by her predecessor, outgoing president Lopez Obrador. She wants them to be part of a first wave of legislation together with pension reforms for public workers, a ban on reelection to public office and assistance programs for woman and schoolchildren. The judicial reform would put judges elected by popular vote on the nation’s Supreme Court and other lower courts and is seen (by markets and opponents) as eroding checks on power. Ever since the Mexican presidential election earlier this month, Mexican assets have been underperforming. After the recent statements to push through, USD/MXN tested the recent tops around 18.50. This compares with pre-election levels of 17.

Graphs

GE 10y yield

The ECB cut its key policy rates by 25 bps at the June policy meeting. A more bumpy inflation path in H2 2024, the EMU economy gradually regaining traction and the Fed’s higher for longer US strategy make follow-up moves difficult. Markets are coming to terms with that. The German 10y yield set a new YtD top at 2.7%.

US 10y yield

The Fed in May acknowledged the lack of progress towards the 2% inflation objective, but Fed Chair Powell indicated that further tightening was unlikely. However, the FOMC Minutes still showed internal debate on whether policy is restrictive enough. Sticky inflation suggests any rate cut will be a tough balancing act while several policy makers hint at a higher neutral rate. The US 10-y yield is stuck in the 4.3/4.7% trading range.

EUR/USD

EUR/USD is stuck in the 1.06-1.09 range. The desynchronized rate cut cycle with the ECB exceptionally taking the lead, strong US May payrolls and a swing to the right in European elections pulled the pair away from 1.09 resistance. Focus turns to the US side of the story with May CPI inflation numbers and a more hawkish Fed looming on the horizon.

EUR/GBP

Debate at the Bank of England is focused at the timing of rate cuts. Slower than expected April disinflation and a surprise general election on July 4 suggest that a June cut in line with the ECB looks improbable. Sterling gained momentum with money markets now discounting a Fed-like scenario. EUR/GBP tested the 2023 & 2024 lows near 0.85. Euro weakness eventually pulled the trick after French president Macron called snap elections following a weak showing in EU elections.