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Gold remains constructive and probing again through $2000 level on Thursday, lifted by fresh risk aversion on renewed US banking system stress.

Fresh action by the US House of Representatives to raise the government’s $31.4 trillion debt ceiling, aims to help banking sector, as government is so far unlikely to intervene in rescue of First Republic Bank, which was the latest addition to the list of the US banks in troubles.

Growing uncertainty sparked risk aversion and boosted demand for safe-haven gold, brightening its near-term outlook.

Sustained break above $2000 barrier (psychological / Fibo 38.2% of $2048/$1969) after repeated failures in past two days, would generate fresh bullish signal and make renewed bulls more comfortable, as daily studies are still mixed (north-heading 14-d momentum is still in the negative territory).

This will open way for extension a gradual ascend in past four days towards pivotal barriers at $2015/18 (lower platform / Fibo 61.8%) break of which would signal an end of corrective phase ($2048/$1969) and unmask key resistances at $2032/48 (Apr 5/13 tops).

Caution on repeated failure to clearly break $2000 barrier which would still keep the downside vulnerable.

Res: 2009; 2015; 2018; 2032.
Sup: 1988; 1983; 1976; 1969.

AUD/USD is trading at 0.6606, down 0.31%. Earlier, AUD/USD fell to a low of 0.6595, its lowest level since March 15^th.

Australian inflation heads south

Australia’s inflation levels have been falling and the downward trend continued in the first quarter. The headline figure slowed to 7.0%, down from 7.8% in Q4 and a notch above the market consensus of 6.9%. On a quarterly basis, headline CPI from 1.9% to 1.3%, versus the market consensus of 1.4%. The monthly CPI for March fell from 6.8% to 6.1%, below the estimate of 6.6%.

Core CPI, which is considered a more reliable gauge of inflation trends, headed lower and beat the estimates, falling from 6.9% to 6.6% y/y (7.2% est.). On a quarterly basis, core CPI dropped to 1.2%, down from 1.7% and below the estimate of 1.4%.

The key takeaway from these positive numbers is that they appear to have cemented another rate pause at the May 2^nd meeting. The odds of a pause have risen from 83% prior to the inflation report to 100% at present. It looks safe to say that inflation has peaked, although the cautious RBA is unlikely to use the “P” word just yet. At the same time, it is premature to declare victory in the inflation battle, with headline inflation and the core rate running more than three times the RBA’s target band of 2-3%. Despite the market’s confidence in another pause, some economists feel that the RBA remains concerned that the high core rate could fuel a price wage spiral if it doesn’t tighten further.

First Republic’s shares sink

AUD/USD is also under pressure as the banking crisis is back in the headlines. First Republic Bank shares fell by 50% after the Bank’s earnings report showed that deposits plunged by 40% in the first quarter. Risk sentiment has fallen as First Republic’s future very survival is at stake, and if banking jitters worsen, the US dollar could continue to climb higher.

AUD/USD Technical

• AUD/USD tested resistance at 0.6620 earlier today. The next resistance line is 0.6714
• 0.6572 and 0.6459 are providing support

• Tokyo Core CPI expected to remain unchanged at 3.2%
• US to release unemployment claims and GDP
• BoJ’s 2-day meeting begins today

USD/JPY is trading quietly at 133.84, up 0.13% on the day. The yen’s lack of movement could change today with a host of key releases. Japan will release Tokyo Core CPI, while the US publishes Preliminary GDP for the first quarter and unemployment claims. Japan releases Tokyo Core CPI for April early on Friday, which is expected to remain steady at 3.2%.

Will BoJ meeting bring more of the same?

Japan’s inflation is running around 3%, a dream for most central banks but a headache for the Bank of Japan. There has been pressure on the BoJ to tighten policy as inflation remains above the target of 2%. Japan has experienced decades of deflation and the massive stimulus programme was meant to stimulate the economy. Inflation has moved higher, but former BoJ Governor Kuroda insisted that the central bank would not consider tightening until it was convinced that inflation was sustainable, which required stronger wage growth.

New BoJ Governor Ueda has toed the party line so far, but left open the possibility of tightening if wage growth and inflation climb faster than expected. All signs point to the BoJ maintaining its policy settings when it wraps up its 2-day meeting on Friday, but the central bank has surprised the markets in a big way before, and the markets will be following the meeting closely.

In the US, unemployment claims have moved higher for four straight weeks and come in above the estimate each time. The upward trend is expected to continue, with claims expected to rise to 248,000, up from 245,000. The labor market remains strong, but the upswing could signal cracks in what has been a robust US labour market. Preliminary GDP for the fourth quarter is expected to drop to 2.0% y/y, down from 2.6% in Q4.

USD/JPY Technical

• USD/JPY tested support at 133.41 earlier in the day. The next support line is 132.69
• 134.27 and 134.99 are the next resistance lines

Eurozone Economic Sentiment Indicator ticked up from 99.2 to 99.3 in April, below expectation of 99.9. This is the third month of a general sideways movement of the indicator. Industry confidence dropped from -0.5 to -2.6. Services confidence rose from 9.6 to 10.5. Consumer confidence rose from -19.1 to -17.5. Retail trade confidence rose from -1.5 to -1.0. Construction confidence was unchanged at 1.0. Employment Expectation Indicator dropped from 108.9 to 107.4. Economic Uncertainty Indicator dropped from 22.4 to 22.2.

EU ESI was unchanged at 97.3. Employment Expectation Indicator dropped from 107.5 to 106.1. Economic Uncertainty Indicator dropped from 22.1 to 21.8. Amongst the largest EU economies, the ESI improved in Spain (+3.7) and, to a lesser extent, in Poland (+1.1) and Germany (+0.8). While sentiment edged up also in Italy (+0.3), it deteriorated in the Netherlands (-1.6) and, particularly, in France (-4.2).

Full Eurozone Economic Sentiment Indicator release here.

• Conflicting macro news flow has capped gold in a short-term range-bound movement.
• 1-year rolling uptrend of gold versus most major fiat currencies remains intact.
• Lower 10-year US Treasury real yield may provide an impetus for gold bulls.

The recent movement in the price of gold has started to falter from its recent 52-week high of US$2,048 per ounce reached on 13 April 2023. So far, it has staged a pull-back of -3.8% to hit a recent low of US$1,969 and faced a bit of a struggle to trade above $2,010 which is also around its 20-day moving average.

There are a couple of reasons to explain the recent bout of short-term lackluster range-bound movement. Firstly, the current pull-back in gold from its US$2,048 recent high has taken shape right below the prior significant all-time high peaks of US$2,075 (7 Aug 2020) and US$2,070 (8 Mar 2022) which translates to lingering fear in the mindset of market participants that a failed third attempt to break above its prior significant peaks may lead to a potential major downside reversal for gold.

Secondly, conflicting macro news flow; the positive narratives that support bullish bias on gold such as heightened geopolitical risks that arise from the economic realm (US-China High Tech War, ramped-up discussions on de-dollarization and deglobalization) and ongoing territorial disputes between Russia and Ukraine plus more recent frequent “outbursts exchanges” between US and China officials on the status of Taiwan’s sovereignty.

On the flip side, the negative narrative will be a switch of demand from safe-haven assets such as gold to risk-on assets when the dovish Fed pivot materializes to kickstart a fresh interest rate cut cycle as soon as July based on expectations from interest rates futures.

Aside from these conflicting factors, other insightful elements are worth highlighting that may impact the prices of gold in the short to medium term.

Gold has continued to trend higher against most fiat currencies & XAU/USD plays a catch-up

Fig 1:  Gold vs. fiat currencies 1-year rolling performances as of 27 Apr 2023 (Source: TradingView, click to enlarge chart)

The performance of gold against other currencies such as JPY, AUD, CAD, NZD, and SEK) has led other XAU pairs and trended higher since the end of September 2022. Interestingly, one of the laggards, gold against USD (XAU/USD) has started to play catch-up since early March 2023 and recorded a rolling 1-year gain of +4.90% as of 27 April 2023.

If one has a staunch belief in the principle of “trend-following”, follow the major trend as they will advocate.

A further fall in US 10-year Treasury real yield may have a positive impact on gold

Fig 2:  Correlation between Gold & US 10-YR Treasury real yield as of 27 Apr 2023 (Source: TradingView, click to enlarge chart)

Gold is a zero-yield asset as it does not generate recurring streams of cash inflows such as dividends and coupon payments from investing in equities and bonds respectively. Hence, if one establishes a long position in gold and held for some time, there will be opportunity costs incurred such as interest income forgone on coupon payments if invested in bonds. Hence, a higher bond yield translates to a higher opportunity cost for holding gold.

Based on a general correlation analysis since 2007 on the movement of a longer-term 10-year US Treasury real yield (excluding inflation effects) derived from the market price of the 10-year US Treasury inflation-protected securities with the price of spot gold (US$ per ounce), it has shown that prior significant up moves in gold have coincided with declines in the 10-year US Treasury real yield and vice versa when the real yield rallied.

Since Oct 2022, the 10-year US Treasury real yield has continued to inch lower and traced out a series of “lower highs” which in turn may support a further potential up move in gold.

Gold (XAU/USD) Technical Analysis – major uptrend intact, eyeing a retest at 2,075 all-time high

Fig 3: Gold (XAU/USD) trend as of 27 Apr 2023 (Source: TradingView, click to enlarge chart)

The recent -3.9% pull-back in gold (XAU/USD) from its 13 April 2023 high of 2,048 has managed to stall at the median line of the major ascending channel in place since the 3 November 2022 low.

The 4-hour RSI oscillator has just managed to stage a bullish breakout from its former corresponding descending resistance at the 55% level and has yet to reach its overbought region of above 70% which suggests a potential revival of short to medium-term upside momentum.

If the 1,955 key medium-term pivotal support holds and a break above the 2,012 intermediate resistance, XAU/USD may see a retest on its current all-time level of 2,075 printed on 7 August 2020. A clearance above 2,075 sees the next resistance coming in at 2,120 (upper boundary of the ascending channel & a key Fibonacci expansion level).

However, a break with a 4-hour close below 1,955 negates the bullish tone to expose the next support at 1,890 (100-day moving average & the lower boundary of the ascending channel).

AUDUSD is set for its third negative monthly close after failing to pierce through the 0.6800 level. The focus is currently on the March low of 0.6563 as the short-term outlook is looking blurry.

The pair could not successfully climb above its 200-day simple moving average (SMA), with the 38.2% Fibonacci retracement level of the April-October 2022 downtrend triggering this week’s downfall to 0.6590. Notably, the 50-day SMA crossed back below the 200-day SMA, diminishing hopes for an uptrend resumption.

In momentum indicators, the MACD is decelerating in the negative region and below its red signal line, flagging more losses ahead. Likewise, the RSI has dived into the bearish region, adding to the discouraging signals. Yet, some consolidation cannot be excluded as the stochastic oscillator is already within the oversold region, while the price itself is trading around the lower Bollinger band.

In the bearish scenario, where the sell-off expands below the March low of 0.6563, the 23.6% Fibonacci of 0.6525 could immediately come to the rescue, preventing a sharp decline towards the 0.6410 handle. Should the latter give way, some congestion could emerge around 0.6350 before the door opens for the key 0.6270 support zone.

If buying interest rises above Wednesday’s bar of 0.6640, the next obstacle could be the 50-day SMA at 0.6685. Not far above, the 200-day SMA and the tentative descending trendline from February’s peak could be a bigger challenge. In the case that the bulls claim that territory, driving above the 0.6780 resistance too, then the recovery might flourish towards the 0.6850 mark.

Summing up, AUDUSD seems to be exposed to more downside according to the technical picture. Nevertheless, traders may wait for a break below 0.6563-0.6525 or above 0.6800 to direct the market accordingly.

In the long term, AUDUSD seems to be forming a large cycle correction b. This correction has the structure of a primary double zigzag Ⓦ-Ⓧ-Ⓨ.

Inside the actionary wave Ⓨ, two parts can be completed, i.e., the impulse (A) and the intermediate correction (B) in the form of a triple zigzag W-X-Y-X-Z.

At the time of writing, an impulse (C) can be built, consisting of minor sub-waves 1-2-3-4-5.

There is a high probability that the impulse (C) will end at the minimum of 0.617, which was marked by the impulse wave (A).

The alternative chart shows an incomplete intermediate correction (B).

The indicated correction (B) has a complex internal structure of the triple zigzag W-X-Y-X-Z, as in the first scenario, but its end is expected at a higher level.

It is assumed that in the last section we see the construction of a minor wave Z. This wave may end in the form of a minute double zigzag near 0.732.

At the level of 0.732, correction (B) will be at 76.4% of impulse (A).

Daily Pivots: (S1) 1.0972; (P) 1.1034; (R1) 1.1100; More...

Breach of f1.1075 suggests that EUR/USD's whole rally from 0.9543 is resuming. Intraday bias is now on the upside for 1.1273 fibonacci level. Break there will target 61.8% projection of 0.9534 to 1.1032 from 1.0515 at 1.1441. Meanwhile, outlook will remain bullish as long as 1.0908 support holds, in case of another retreat.

In the bigger picture, rise from 0.9534 (2022 low) is in progress for 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273. Sustained break there will solidify the case of bullish trend reversal and target 1.2348 resistance next (2021 high). This will now remain the favored case as long as 1.0515 support holds, even in case of deeper pull back.

Daily Pivots: (S1) 133.13; (P) 133.55; (R1) 134.07; More...

Intraday bias in USD/JPY remains neutral and outlook is unchanged. Further rally is expected as long as 132.03 support holds. On the upside, break of 135.13 will resume the choppy rebound from 129.62 towards 137.90 resistance next. However, break of 132.03 will argue that the rebound has completed already and turn bias back to the downside for 129.62 and below.

In the bigger picture, corrective pattern from 127.20 might be extending. But after all, down trend from 151.93 is expected to resume at a later stage. Break of 127.20 will resume this down trend and target 61.8% projection of 151.93 to 127.20 from 137.90 at 122.61. This will now be the favored case as long as 137.90 resistance holds.

Daily Pivots: (S1) 1.2409; (P) 1.2462; (R1) 1.2521; More...

No change in GBP/USD's outlook as sideway trading continues Outlook stays bullish with 1.2343 support intact. On the upside, above 1.2545 will target 1.2759 fibonacci level first. Firm break there will target 61.8% projection of 1.0351 to 1.2445 from 1.1801 at 1.3095. However, considering bearish divergence condition in 4H MACD, firm break of 1.2343 will confirm short term topping, and turn bias back to the downside for deeper pullback.

In the bigger picture, the rise from 1.0351 medium term term bottom (2022 low) is in progress for 61.8% retracement of 1.4248 (2021 high) to 1.0351 at 1.2759. Sustained break there will add to the case of long term bullish trend reversal. Further break of 61.8% projection of 1.0351 to 1.2445 from 1.1801 at 1.3095 could prompt upside acceleration to 100% projection at 1.3895. For now, this will remain the favored case as long as 1.1801 support holds, even in case of deep pull back.