Gold rises on US ratings downgrade: Asian Open – 2nd August 2023

Market Summary:

Fitch Ratings agency downgraded the US long term ratings outlook to AA+ (from AAA) to reflect “expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance…” according to the announcement on their website
S&P 500 E-mini futures fell around -0.6% at the open (which is a bit of a ‘meh’ response in the grand scheme of things) and Treasury Secretary Janet Yellen called the downgrade ‘arbitrary’ and ‘outdated’
Still, it weighed on the US dollar and sent gold 0.4% higher as it sucked in safe-haven flows early in the Asian session
The US dollar continued to advance as US job openings fell to a 26-month low, to serve as a timely reminder of just how tight the US labour market remains
However, the US manufacturing sector continued to shrink although at a slightly slower pace with the ISM survey falling to 46.4 (below 50 denotes contraction). Prices paid – a rough measure of inflationary pressure within the sector – also contracted at 42.6
The RBA held their cash rate at 4.1% for a second month, and many are now speculating that it could be their peak rate. The focus now shifts to Friday’s SOMP (Statement on Monetary Policy) to see if any significant revisions are made to their quarterly forecasts
The stronger US dollar and dovish RBA meeting sent AUD/USD down to 66c, which is a major line of defence for Aussie bulls over the near term. We noted in yesterday’s report that AUD/USD shares a strongly inverted 20 -day correlation with DXY (US dollar index), so perhaps it can break support if DXY keeps advancing
China’s manufacturing sector contracted faster than expected in July according to a privately run PMI survey by Caixin
Australian building approvals fell -7.7% in June. Yet building approvals is a volatile number at the best of times, so whilst it fell -7.7% m/m in June – the growth has simply slowed relative to May’s 20.6% surge.

Events in focus (AEDT):

09:00 – Australia’s construction and manufacturing index (AIG)
09:50 – Japan’s monetary policy meeting minutes, retail sales, monetary base y/y
11:30 – The RBA’s chart pack for Australia

ASX 200 at a glance:

The ASX 200 closed to a 2-day high after the dovish RBA meeting
It also formed a 3-day bullish reversal pattern (morning star reversal) around the 7370 – 7400 support zone
SPI futures point to a weak open, and Emini futures also suggest some stress may come from the US downgrade
Today, we want to see if the ASX can build another base above the 7370 – 7400 support zone for a potential long towards 7500
If it holds above 7400, it suggests the fallout from the US downgrade is less significant
A break below 7370 assumes a move back towards 7300

Gold 1-hour chart:

Whilst gold prices breached last week’s low and formed a bearish engulfing day, news of the US ratings downgrade has seen gold prices gap higher just after the futures open. They also gapped above trend resistance but are now trying to fill that gap, and RSI (14) has moved out of oversold to suggest a cycle low has formed. From here, we think it has the potential to move towards 1960 / the volume node around 1957, a break above which brings the cycle high around 1970 back into focus. And it success likely depends on the performance of the US and how seriously markets deem the ratings downgrade to be. A break below 1940 invalidates the near-term bullish bias.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.