Gold jumps to new highs with the dollar still strong

* Israel’s plan to strike Iran is ready, according to reports  

* ASML CEO sees slow chip recovery extending ‘well into 2025’

* Pullback in US yields spurs gold’s march to record peak

* ECB set for second straight rate cut as inflation and growth abate

FX: USD climbed higher for a sixth straight day to an 11-week high. A win streak that long hasn’t been seen since August 2023. Prices have pushed above the 50% retracement of the April to September downtrend at 103.33. A Trump election victory is starting to get priced in. He doubled down on his plans for high tariffs in a TV interview. Tax cuts and looser financial regulations are all viewed as dollar positive.

EUR dropped to fresh lows and the lowest levels since early August. Markets will be watching ECB President Lagarde and any forward guidance, though expectations are very low.

GBP underperformed as cable dipped below 1.30 and major support. Inflation came in softer than expected. Headline CPI fell below 2% for the first time since April 2021. The key services figure came in below consensus (5.2%) and the BoE’s own projection (5.5%) at 4.9%. This firmed up bets for two 25bps rate cuts at the final two BoE meetings of the year. The 100-day SMA, now at 1.2951, has offered support before in June, July and August.

USD/JPY continued to hover just below 150 in what looks like bullish consolidation before a break to the upside. However, Treasury yields are not offering any help as they slid again for a second day. The 10-year, which is seen as a proxy for global borrowing costs, has fallen form the recent high at 4.14% to very close to 4%. A BoJ official said the bank must raise rate very moderately given uncertainties.

AUD broke down and through its 100-day SMA at 0.6693. USD/CAD fell for a second day in a row easing overbought conditions as the loonie outperformed its peers.

US Stocks were positive as risk has proven choppy this week. The S&P 500 closed 0.47% higher to settle at 5,842. The tech-heavy Nasdaq 100 added 0.07% to finish at 20,174. The Dow settled up 0.759% at 43,077. Utilities paced the gainers with only consumer staples and communication services in the red. Indices overcame initial weakness with eyes on multiple themes and drivers including earnings, geopolitical drama and the US election. Decent results from United Airlines and Morgan Stanley saw their shares surge 12% and 6.5% respectively. ASML continued lower, down over 6% after plunging 16% on Tuesday when the chip equipment maker lowered the upper end of its fiscal 2025 sales outlook range.

Asian stocks: Futures are mixed. Asian stocks traded mixed also with disappointing earnings from ASML and LVMH denting the risk mood. The ASX 200 was muted with tech weakness and miners also subdued after Rio Tinto’s quarterly update. The Nikkei 225 underperformed and slipped back below 40,000. The Hang Seng and Shanghai Composite rebounded from early losses. Focus is on a press conference today promoting the steady development of the property sector.

Gold matched the record high from late September at $2685. Yields moved lower helping the non-interest bearing precious metal.

Day Ahead – ECB meeting may not give much away

Downside surprises on inflation and rising growth concerns will push the ECB to cut rates again today. Soft PMI and CPI metrics have seen a dramatic ramp up in easing expectations. The mood music has changed quite dramatically in the last few weeks. The presumed quarterly, gradual pace of rate cuts heard after the September ECB meeting have vanished.

There are no new staff economic projections until the December meeting. That means the focus will be on how President Lagarde guides the pace of further easing, given that the bank has shifted away from what appeared to be a stance of only easing policy at meetings containing macro projections. A data dependent, meeting-by-meeting approach is expected with no pre-commitment to further cuts.

Chart of the Day – EUR/USD looking to help from Lagarde

If President Lagarde bats away suggestions of a prolonged series of rate cuts by the ECB, the euro might find some love. It desperately needs some as it has been in virtual freefall since struggling to break above serious resistance around 1.12. Roughly four back-to-back rate reductions were priced in by markets at the start of the week. A ‘hawkish cut’ might slow the downtrend with prices needing to get above 1.0935 and t 1.0974 to spark a rebound. But a more dovishness bias would see 1.0832 and 1.08 challenged.

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