Gold, ASX 200 Analysis: Morning Brief

Market summary

• Markets have flipped back to favouring a Fed pause in June following comments from Fed officials, with Fed Fund futures now implying a 66.8% chance of no action
• Vice Chair Jefferson suggested a pause could be in order, although that may not mean it’s the end of the tightening cycle, with some now expecting the Fed to deliver a ‘hawkish pause’ in June 14^th
• Australian CPI rose 6.8% y/y above the 6.4% expected and 7.0% prior – sparking bets that RBA could hike again next week (RBA cash rate futures imply a 22% of a hike, up from 10% before the release)
• But China’s weak PMIs released just momentum later overshadowed the report, with concerns over China’s recovery and global growth weighing on sentiment to send indices and futures markets broadly lower, led by China
• Oil prices were slammer for a second day on demand concerns with WTI falling to an 18-day low
• USD and JPY were the strongest majors ahead of the European Open, but Fed comments saw it reverse all prior gains and help AUD/USD recover from its 6-month low bac above 0.6500
• USD/JPY retraced for a third day but had a volatile battle around 140 before closing lower and EUR/USD fell to a 14-month low (helped lower by weak CPI figures from France and Germany of Eurozone inflation data today
• Japan’s industrial production output, forecasts for 1 and 2 year and retail sales were below expectations
• Wall Street pulled back from its cycle highs for a second day on concerns over the debt-ceiling deal
• The House of Reps are due to vote on the debt-ceiling bill this morning at 09:30 AEDT, which could spark risk aversion should it hit a stumbling block (it is currently favoured to pass)

ASX 200 at a glance:

• Most bearish day in 10 weeks following weak China PMI data
• A bearish Marabuzo day formed
• It closed at the low of the month and formed a bearish engulfing month formed in May
• June has posted negative average returns 61% of the time over the past 30 years
• June is one of the less volatile months of the year with a high-low range of ~5%

Gold 30-minute chart:

Tuesday’s bullish engulfing day confirmed support around 1934 ahead of yesterday’s break higher. It also marked a likely inflection point given the rebound from the 6-month trendline. The day closed with a bearish hammer, so perhaps a pullback towards 1950 (around Monday’s high) is on the cards. But from here we’re looking for evidence of a swing low on lower timeframes.

Prices have opened slightly beneath the daily pivot point. But the move from yesterday’s high appears to be corrective, so perhaps a swing low is close. There was lot of trading activity around 1958 during the consolidation ahead of the break higher, which could provides a potential level of intraday support today.

Events in focus (AEDT):

• 09:30 – US House of Republicans vote on the debt-ceiling bill
• 11:30 – Australian capital expenditure (CAPEX)
• 11:45 – China manufacturing PMI (Caixin)
• 19:00 – Eurozone CPI
• Overnight (US employment data includes layoffs at 91:30, ADP employment at 10:15 and jobless claims at 10:30)

— Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge