Gold higher again, dollar flops on data and Powell

Headlines

* Powell still sees room for the Fed to cut rates this year

* US Services growth cools as price gauge drops to four-year low  

* Eurozone inflation falls again, paving the way for interest rate cuts

* Gold surges to new highs after Powell remarks and geopolitical tensions

FX: USD backed further away from 105 resistance after the disappointing ISM Services data. Apart from missing estimates, the prices paid component plunged to the lowest level since March 2020. This contrasts with the much stronger than expected manufacturing data earlier in the week. ADP jobs figures beat expectations, but this has virtually zero correlation with Friday’s NFP. The Fed’s Powell also reiterated that rate cuts will be appropriate “at some point this year”.

EUR surged higher for a second straight day even though the region’s CPI data printed softer than expected. Prices slowed to 2.4% from 2.6% and 2.5% expected. Core prices ticked two-tenths lower to 2.9% from 3.1%. A June rate cut is now nailed on with very little priced into next week’s ECB meeting. The 50-day and 200-day SMAs sit at 1.0829/33.

GBP advanced above the 200-day SMA at 1.2588 as that indicator looks to be acting as support again. It capped the downside previously in February and in March.

USD/JPY edged higher closer to the intervention barrier around 152. The yen was the weakest major on the day. We’ve said it before, and we’ll say it again – the longer prices trade sideways in narrow ranges, the bigger the range expansion will be. It looks like NFP will determine the breakout direction. The yield on the 10-year US Treasury made fresh multi-month highs above 4.40% before paring gains. This has a high correlation with the major.

AUD rebounded above its 200-day SMA at 0.6544. USD/CAD dropped towards its long-term moving averages and 1.35. WTI crude reached its highest level since last October amid tight global supplies.

Stocks: US equities were mixed as gains were given up towards the end of the session. The broad-based benchmark S&P 500 finished 0.11% higher at 5211. The tech-laden Nasdaq 100 gained 0.21% to close at 18,160. The Dow Jones settled 0.11% down at 39,127. Intel said its foundry business lost $7bn for 2023, with the unit not reaching break-even point for several years. Disney slid over 3.3% with its biggest one-day drop since September. CEO Iger won the proxy vote over activist investor Nelson Peltz.

Asian Stocks: APAC futures are in the green. Markets on Wednesday were lower with stocks weak Stateside. The Nikkei 225 slid below 39,500 with Fast Retailing hit on lower same-store sales at Uniqlo. China stocks indices were subdued amid tech weakness and mixed US-China headlines.   

Gold: Prices posted another record high at $2300 and a seventh day of gains in a row. The softer USD helped after Powell’s comments, while geopolitical risks in the Middle East have increased with Israel strikes in Syria. Silver joined the rally reaching a two-year high above $26.

Day Ahead – ECB Meeting Minutes

Guidance was repeated at the most ECB recent meeting. But this came as a disappointment to some who wanted chatter on policy normalisation and rate cuts. Updated staff economic projections did offer something to the doves with lower inflation forecasts.

President Lagarde set out policymakers’ views for the next few months when she said the bank will know a lot more in June. Wage data and more inflation data will be available, as well as fresh staff projections. It seems the ECB very much favours a June rate cut. Yesterday’s falling inflation backs this stance with hawks even in support of this timing. Interestingly, Reuters recently noted that some policymakers floated the idea of a second cut in July to win over a small group still pushing for an April start. That means any talk on this will be of note for the market and could put pressure on the euro.

Chart of the Day – Oil hits fresh 5-month highs

Oil prices continued higher yesterday with Brent hitting an intra-day high of almost US$90. Those levels were last seen back in early November. An escalation in tensions in the Middle East have pushed prices higher. This renewed tension comes at a time when oil fundamentals continue to tighten thanks to the rollover of OPEC+ voluntary additional supply cuts. US and China data also point to robust demand which points to potential inflationary pressures.

Brent printed a doji yesterday denoting some indecision after five straight days of gains. Prices are mildly overbought on several indicators. Bulls will have $90 in their sights with the October 2023 top at $92.73. Support sits around $87.09.

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