Gold, EUR/AUD analysis: Asian Open – 05/09/2023

Market Summary:

• Australian gross company profits slumped by -13.1% in Q2, falling much faster than the -1.9% expected.
• That makes it the worst quarter on record looking at data going back to 1994, although the series was suspended in March 2020 “due to the impacts of Coronavirus (COVID-19)”.
• Outside of China’s equity markets, moves were limited on Monday due to the long Labor Day weekend
• China’s HSCE index led the way higher with a 3.5% rally, the Hang Seng rose 2.5%, the China A50 was up 1.7% and the CSI 300 posted a 1.5% gain
• The Euro area’s Sentix economic index was weaker than expected at -21.5 (-20 expected), with the current situation falling to its lowest level since November and expectations falling back to -21. “Germany is once again the weak man of Europe” according to the report and “in a recession”.
• ECB President Christine Lagarde said that it’s “critical for central banks to keep inflation expectations firmly anchored” amidst changes in energy, labour markets and ongoing geopolitical turmoil. And that means we can forget any dovish rhetoric any time soon, despite economic weakness across Europe.
• EUR/USD managed to lift itself up marginally from Friday’s low yet remains beneath 1.0800, and a downside break and move towards 1.0700 remains on the cards.
• Trading volumes are expected to pick up in the US session as traders return to their desks after the 3-day Labor Day weekend
• The Black Sea grain deal can be restored soon according to Turkey’s Erdogan after he met with Putin in Sochi, which could alleviate some concerns of another round of inflation

Events in focus (AEDT):

• 09:00 – Australian composite, services PMIs (final)
• 09:30 – Japan’s household spending
• 10:30 – Japan’s composite, services PMIs (final)
• 11:30 – Australian current account, net exports contribution to GDP
• 11:45 – Caixin services PMI
• 14:30 – RBA cash rate decision

ASX 200 at a glance:

• The ASX 200 formed a small bullish outside day on Monday, and closed at a 3-week high
• Yet volatility levels remain relatively low due to the 3-day weekend in the US
• SPI futures were lower overnight, which means the ASX cash market is likely to open back within the small range formed below the current cycle highs, last week
• Moves may also be limited today ahead of the RBA meeting

Gold technical analysis (daily chart):

Spot gold prices rose over 3.6% since the false break below 1900. Futures prices held above this key level which provide some confidence spot gold could bottom out, but a weaker US dollar and cooling of yields have also helped – although gold has also managed to withstand strength of these markets in recent sessions.

Prices are now consolidating around 1940, having broken above the August VPOC (volume point of control). I suspect we could be in for some noise around current levels as trading volumes become replenished, but I would welcome any dips towards 1920 – 1925 for a potential long setup, with a view of it moving to the 1960 – 1970 region. Of course, for this to stand any chance of playing out we’d likely need to see US yields and the dollar soften. So it should be a case of monitoring all three markets to better time the entry, or simply step aside until the market tips its hand.

EUR/AUD technical analysis (daily chart):

EUR/AUD remains within an established uptrend on the daily chart, although have retraced back from their highs in three waves. We do not know whether this marks the end of the retracement and momentum will now realign with the bullish trend and break to new highs, or the cross is still within a retracement. Either way, we could be approaching a leg higher.

A small doji formed at the 50% retracement level and 20-day EMA yesterday, although this is due to low-liquidity trade as opposed to a high-volume indecision day. Therefore, we may want to allow for some noise around current levels. But the bias remains bullish above 1.6600 / July high, so any low volatility dips towards this level could be of interest for a near-term bullish setup.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge