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Short Term Elliott Wave in Gold (XAUUSD) suggests the rally from 5.03.2024 low ended a wave 3 at 2450.10 high. Wave 4 pullback is currently in progress. The internal subdivision of wave 4 takes the form of a double three Elliott Wave structure. Down from wave 3, wave (a) ended at 2407.15 low and wave (b) bounce ended at 2433.90. The stock extended lower in wave (c) towards 2325.20 which completed wave ((w)) in higher degree.

The market rallied starting wave ((x)) taking the form expanded flat structure. Up from wave ((w)), wave (a) ended at 2364.12 and pullback in wave (b) ended at 2314.40. Wave (c) higher finish at 2387.71 which completed wave ((x)). XAUUSD continued lower strongly in wave ((y)) of 4. Down from wave ((x)) Wave (a) of ((y)) ended at 2286.50 as an impulsive structure. Wave (b) bounce could already end at 2313.8 and the metal has turned lower in wave (c). Near term, while below 2387, it should continue lower in wave (c) of ((y)) to the extreme 100% – 161.8% Fibonacci area of wave ((a)). This area comes at 2262 – 2185 area where buyers should be waiting to continue the rally or see 3 swings higher at least.

XAUUSD 60 Minutes Elliott Wave Chart

XAUUSD Elliott Wave Video

https://www.youtube.com/watch?v=F4Gw2rjIACs

Australia's NAB Business Confidence fell from 2 to -3 in May, returning to negative territory. Business conditions also saw a slight decline, dropping from 7 to 6. Specifically, trading conditions decreased from 13 to 10, and profitability conditions fell from 6 to 3. However, employment conditions improved, rising from 2 to 5.

NAB Chief Economist Alan Oster noted pointed out that forward orders are particularly weak in retail, wholesale, and construction sectors, indicating potential challenges ahead. Despite a slowdown in activity, capacity utilization remains above average, suggesting that the "process of bringing supply and demand back into balance remains incomplete".

Inflationary pressures are re-emerging, with labor cost growth increasing to 2.3% on a quarterly basis, up from 1.5% in April. Purchase cost growth also rose to 1.9%, compared to 1.3% previously. Overall product price growth climbed to 1.1%, up from 0.8%, with retail price growth increasing to 1.6% from 1.0%, and recreation and personal services prices edging up to 1.0% from 0.9%.

Oster concluded that the data presents a "mixed" picture for RBA. There are clear signs of growth challenges, yet inflationary pressures remain a concern. "We expect the RBA to keep rates on hold for some time yet as they navigate through these contrasting risks."

Full Australia NAB business confidence release here.

In a joint interview with four European newspapers, ECB President Christine Lagarde dismissed the notion that last week's quarter-point rate cut would be the start of a series of similar moves. Lagarde made it clear that "interest rates will not necessarily move downward in a straightforward manner."

"We are not following a pre-determined path," she explained, noting that "there could be periods where we leave interest rates unchanged."

When asked if rates could remain unchanged for multiple meetings, Lagarde said, "It's possible. We need to observe how labor costs evolve and ensure that earnings continue to absorb the recent increases."

Lagarde emphasized ECB's ongoing efforts to control inflation, stating, "We are still in tightening territory and will continue as long as necessary to bring inflation back to 2 percent."

The GBPJPY pair reflects the exchange rate between the British Pound and the Japanese Yen, influenced by the economic conditions and monetary policies in the United Kingdom and Japan. The British Pound is affected by UK economic indicators, political events, and the Bank of England decisions. On the other hand, the Japanese Yen is impacted by the health of Japan's economy, global risk sentiment, and the monetary policies of the Bank of Japan. This currency pair is known for its volatility, making it attractive for traders interested in the dynamic interplay between these two major economies.

Japan gross domestic product (GDP) QoQ, June 10, 01:50 (GMT+2)

The forecast for Japan’s GDP indicates a contraction of -0.5% this quarter, down from the previous growth of 0.1%. If the GDP drops more severely than the expected -0.5%, it would suggest a worsening economic situation in Japan. This will potentially drive investors toward safer assets and weaken the Yen against the Pound, thus increasing the GBPJPY rate. Conversely, if the GDP shows a reduction that is less than expected or unexpectedly grows, it would enhance investor confidence in the Japanese economy, strengthening the Yen and potentially decreasing the GBPJPY rate as the Yen appreciates.

UK gross domestic product (GDP) MoM, June 12, 08:00 (GMT+2)

The forecast for the UK’s monthly GDP is an increase of 0.2%, signaling a slowdown from the previous month’s growth of 0.4%. Meeting or surpassing this forecast could reinforce the positive outlook on the UK’s economic resilience, thereby supporting the Pound’s strength and potentially pushing the GBPJPY rate up. Conversely, if GDP growth is less than expected, suggesting economic stagnation or a downturn, it could weaken the Pound due to fading investor confidence. This weaker stance would likely push the GBPJPY rate downward as market participants might shift their investments towards safer or more stable currencies, including the Yen.

In the daily timeframe, GBPJPY, in a long-term bullish trend, has formed an upward channel and reached an important resistance area. The market has strong bullish sentiments, and many indicators show further upside opportunities.

• If the bulls push the price above the 200,000 resistance, GBPJPY will reach 206,000, which corresponds to 161.8 Fibonacci;
• However, if the price bounces off the resistance, it could correct to 197.000 and then start rising to 206.000.

• EURUSD under bearish pressure
• Likely to fall to support level 1.0700

EURUSD currency pair under the bearish pressure after the earlier breakout of the support level 1.0800 (which stopped the previous wave (b) at the end of May).

The breakout of the support level 1.0800 accelerated the active short-term impulse wave 3 from the start of June.

Given the strongly bearish euro sentiment and the continuation of the bullish USD sentiment, EURUSD currency pair be expected to fall further to the next support level 1.0700.

• Gold reversed from support level 2300.00
•  Likely to rise to resistance 2385.00

Gold recently reversed up from the pivotal support level 2300.00 (which stopped the previous waves A, (4) and ii, as can be seen below).

The support level 2300.00 was strengthened by the lower daily Bollinger Band and by the 50% Fibonacci correction of the previous upward impulse from March.

Given the clear daily uptrend and the still oversold daily Stochastic, Gold be expected to rise further to the next resistance 2385.00, top of the previous correction b.

• A dovish pivot by the Fed is looking less likely at the June meeting
• Will Fed officials flag two or just one rate cut after strong jobs data?
• CPI report will also be crucial on Wednesday (12:30 GMT)
• Statement due at 18:00 GMT will be followed by press conference at 18:30 GMT

One step forward, two steps back

After a run of consistently hot data on inflation and the economy all year, it briefly seemed like the tide was turning for early rate cut hopes. The last two sets of inflation readings were somewhat soft, while recent growth indicators have been a bit patchy. But the optimism didn’t last long as Friday’s nonfarm payrolls report threw a spanner in the works, dashing expectations that the long-anticipated Fed pivot could come as early as the June policy meeting.

The Fed is now not only certain to keep interest rates unchanged on Wednesday, but it’s also likely to maintain its higher for longer stance. The May jobs report has given Federal Open Market Committee (FOMC) members little room to manoeuvre. A payrolls print of 272k is hardly a sign that the labour market or the economy as a whole are in trouble. The slight pickup in yearly wage growth is also slightly concerning.

Making sense of the data

The only ‘relief’ in the jobs numbers was the unexpected increase in the unemployment rate to 4.0%, which broke a 27-month streak of holding below that level. Usually, whenever the payrolls establishment survey diverges from the separate household survey that’s conducted to gauge the jobless rate, one of them tends to get revised.

Hence, policymakers will probably avoid trying to read too much into the data, but at the very least, the May figures have lessened the urgency for a dovish tilt. With the mixed data continuing to cast a cloud over the policy path, the Fed will not want to deviate much from its recent language in the statement.

Dot plot: one vs two cuts

However, the central bank will also be publishing updated economic projections, including its famous dot plot. A number of Fed officials have hinted at just one rate cut this year so should the median dot plot point to a single 25-basis-point reduction compared to three in the March dot plot, that would be perceived as a hawkish signal. But if FOMC members pencil in two cuts, that would keep alive hopes of a September move.

At the moment, the odds seem to be swaying towards just one cut, while the markets are caught somewhere between one and two. The CPI numbers to be released earlier in the day could prove decisive for the tone of the statement as well as Chair Powell’s press conference, though they might come too late for influencing the dot plot.

One eye on CPI

After easing to 3.4% y/y in April, headline CPI is forecast to have stayed unchanged in May, although the month-on-month print is expected to have moderated from 0.3% to 0.1%. It’s the opposite case for core CPI, with the month-on-month rate maintaining a 0.3% pace, but the annual rate is forecast to ease from 3.6% to 3.5%.

If the CPI figures are more or less in line with expectations, that would keep the Fed on its current path, which means a September cut is still possible but unlikely unless there’s a significant drop in inflation or a deterioration in the labour market over the summer.

Dollar bulls back in charge

For the US dollar, a reaffirmation of ‘higher for longer’ would help to keep it on the front foot, although against the Japanese yen, investors should also keep an eye on the Bank of Japan policy decision due on Friday.

Last week’s strong ISM services PMI and robust payrolls readings aided the greenback to bounce off the 50-day moving average (MA) and climb back above 156.00 yen. A mostly hawkish outcome on Wednesday could push the pair above the May top of 157.76 before the 161.8% Fibonacci extension of the November-December downtrend comes into view at 159.14.

However, a dovish outcome could push the pair below the 50-day (MA), which would clear the way for a retest of the May low near the 152.00 level.

A lot can happen until September

In a nutshell, there’s a sizeable risk of both a dovish and hawkish surprise at the June meeting depending on how hot or soft the CPI stats are. However, in either scenario the Fed might prefer not to reveal much about its future course of action. After all, there’s still the July meeting to communicate a policy shift before September, not to mention the Jackson Hole symposium in August.

As tempting as it might be for Powell to drop some hints should he get asked to comment on last week’s ECB and Bank of Canada rate cuts, he’ll probably strike a balanced tone as he has done in recent public appearances.

For the markets, the biggest fear is stagflation. But the NFP report just slashed those risks, making a soft landing the base case once again and therefore a panic selloff on Wall Street from upbeat CPI data less likely.

• BoE stuck between strong US data and the ECB rate cut
• Labour market data could support August rate cut expectations
• All eyes on average earnings growth
• Could the pound maintain its recent gains?

BoE remains on the sidelines

While the ECB announced its first rate cut since 2019 and the Fed is preparing for Wednesday’s gathering, the Bank of England has been forced to stay on the sidelines. Its next meeting is scheduled for June 20, but the upcoming parliamentary elections exclude the possibility of a rate cut.

Having said that, the BoE could turn more dovish, but such a reaction could be misinterpreted ahead of the July 4 elections. Talking about a slowing economy in need of a less restrictive monetary policy stance could be seen as intervening in the elections by offering another argument to the Labour party’s arsenal and causing the wrath of Tory officials.

Despite the fact that the BoE members’ public appearances are kept to a minimum, the BoE has not gone into hibernation. It remains vigilant and prepares for the key August 1 gathering. This meeting includes both the quarterly projections and a press conference to explain any likely rate change or prepare the ground for a move in September.

UK data has been positive recently

The April headline CPI figure showed an aggressive easing in inflationary pressures, but it fell short of BoE’s expectations. Interestingly, the core indicator jumped to 3.9% yoy, essentially reminding the market that inflation remains the BoE’s main problem. Coupled with the recent hotter PMI surveys and the various house price indices showing further signs of stabilization, the UK economy might not be screaming for a rate cut at this juncture.

With most investment houses convinced that the first rate cut by the BoE will be delivered in August, this week’s data could open the door to a more dovish rhetoric at next week’s gathering. On Tuesday, the May claimant count change could surprise on the downside, but the focus will be on the average earnings growth data.

The indicator that excludes bonuses is expected to remain stable at 6% year-on-year growth and hence signal that domestic demand could be strong going forward. Interestingly, with the European football championship starting this week, anecdotal evidence points to increased economic activity whenever the English team performs well in the tournament, thus potentially fueling further consumer spending.

On Wednesday, production data and the monthly GDP figure for April will offer more evidence on the ongoing recovery of the UK economy, but the market’s mind will probably be already running ahead to the June 19 CPI report, one day before the BoE meeting.

Could the pound maintain its recent gains?

It has been a relatively good period for the pound, gaining around 2% against the euro since April. Following the European elections’ results, the euro/pound pair dropped aggressively lower, breaking the 0.8492-0.8504 range that has acted as strong support over the past 12 months, and it is now trading at the lowest level since August 2022.

With the ECB unclear about its next move, the pound needs a fresh catalyst to record a decisive move lower. This week’s data, and particularly Tuesday’s average earnings figures, have the potential to surprise on the upside and help the euro/pound pair maintain its recent gains and set sail for the 0.8304 level.

On the flip side, a weak set of data could further support the investment houses’ expectations for a summer rate cut and thus allow the euro/pound pair to retest the 0.8492-0.8504 range and then climb even higher.

The US indices, S&P500 and Nasdaq100, closed Wednesday at record highs, taking a decisive step up, adding over 1.1% and 2%, respectively. The Dow Jones index lagged, adding just 0.25% for the day and is 3% off all-time highs. The Nasdaq-100 and S&P500 defended tops on Thursday, which seems more like a rest before rising rather than a downward reversal signal.

While the Fed has backed away from its original plan and is in no rush to cut rates, other major central banks have roughly stayed on the trajectory announced at the start of the year. Earlier in the week, the ECB and Bank of Canada cut their rates. The SNB made its policy easing move in March.

These actual moves by their colleagues, in addition to less strong economic data, stabilised expectations for the Fed Funds rate. Now, market participants, on average, expect two cuts totalling 50 points by the end of the year. This is a realistic midpoint in the range from the 5-6 rate cuts expected at the beginning of the year to the fears of a hike like we saw last month.

The start of a rate cut cycle and even a shift in medium-term expectations in that direction is favourable for risk appetite. This is the necessary fuel for further gains in equities.

With the S&P500 hovering near its highs, it is surprising to see the Fear and Greed Index degrade to “fear.” It has fallen from 48 to 44 in one week as its Breadth and Strength components of stock price are in “extreme fear.” Safe Haven Demand and Junk Bond Demand points to “fear”.

This is a clear indication that a few heavyweights are now providing stock growth. The optimistic view is that these components have room to recover to normal, which can feed further index gains. A solid bounce off the 50-day average at the end of May is also in the bulls’ favour.

However, the pessimist’s view also has a valid point. Signs of insufficient breadth and strength of gains in equities could be the first warning bells of the global rally’s exhaustion. Also, on the S&P500 chart, a sequence of higher highs corresponds to a sequence of lower peaks, which is a significant bearish factor.

Who will win this battle? We will only be able to judge this at the end of trading next Wednesday following the market reaction to CPI and FOMC.