Rising treasury bond prices and lower yields together with rising military tensions in Europe and Taiwan create an environment in which the price of gold stays bid and rallies are likely. Taiwan’s President has said that Chinese military activities threaten the peace and stability in the region. The United States has sent a delegation to Taiwan as a show of support. At the same time, the Russian military build-up in the easter Ukraine continues. According to Ukraine’s defence minister, Russia was massing 110 000 troops on Ukraine’s border.  By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.

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Russia has claimed the buildup is due to military drills in response to threatening behaviour from NATO but since the annexation of the Crimean peninsula and continued war in eastern Ukraine, there seems to be no reason to believe this explanation. It seems that Moscow is testing the EU and NATO response. If the response is as lame as it was to the crisis in Crimea Russia is likely to see it as a green card for the use of military force to extend its power and influence over sovereign European countries. The United States has sent two Navy ships to the Black Sea in response. 

Crude inventories dropped by 5.9 million barrels, more than double the analysts had estimated. This decline in the inventories, weakness in the dollar and increased demand estimations helped the USOIL to rally 3.7% in yesterday’s trading.

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The Australian economy is expanding as shown by strong employment data released today. The country added 70 700 new jobs doubling the number (35.2K) projected by the analyst consensus. The headline unemployment fell to a one-year low at 5.6%. Some analysts expect the unemployment rate to fall further, as low as 5%, by the end of the year. 

The RBA has recently stated that the central bank will keep very significant monetary support for the Australian economy at least until 2024 as RBA’s employment and inflation targets are not likely to be reached until 2024 at the earliest. The other significant risk event today is the release of the US retail sales data at 12:30 pm GMT. For more details on macroeconomic releases see our economic calendar.

Gold is ranging between two confluence areas. The one below (1723.70 – 1731.50) is created by the SMA(20) and a recent reactionary low and a 38.2% Fibonacci retracement level (when measured from the March low to the latest high). To keep the chart clear and readable this retracement level is not drawn on the chart. The confluence zone above (1758.66 – 1771) includes a recent reactionary high, historical resistance and the 23.6% Fibonacci retracement level.

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The price of gold has recently broken out of a bullish wedge and has created a double bottom formation. The price hasn’t been able to break the neckline of the formation due to a historical resistance level at 1764.70. The proximity of this major resistance level attracted sellers (profit taking) last week. Now the pair is trading inside a range as treasury yields are also behaving much the same way at the moment. A break above the confluence zone would open up a way towards the 1816 resistance level. If the lower end of the range breaks then we expect the price of gold to create a higher reactionary low above the 1767.86 support. As noted earlier, increasing military tensions and rising bond prices (lower yields) are likely to keep gold bid over the coming weeks.

AUDUSD rallied strongly in yesterday’s trading and is now trading near the SMA(50) but most importantly there are now three bullish factors favouring the pair. Higher lows and a strong rally together with the violation of the 0.7677 resistance level indicate AUDUSD is now in a bull mode. The next significant resistance level is at 0.7849. As long as the pair can stay above the 0.7584 reactionary low and create higher lows above it is more likely that the bull mode continues. The 0.7677 level is now a likely support and price action around the level should be monitored closely.

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Recent macroeconomic data releases

  • Chinese Trade Balance 88B, 330B expected
  • Chinese USD-Denominated Trade Balance 13.8 Bn, 52.0 Bn expected
  • US CPI 0.6%, 0.5% expected
  • US Core CPI 0.3%, 0.2% expected
  • RBNZ Official Cash Rate 0.25%, 0.25% expected
  • US Crude Oil Inventories -5.9M, -2.4M expected

Important macroeconomic data releases today

  • Australian Employment Change 70.7K, 35.2K expected
  • Australian Unemployment Rate 5.6%, 5.7% expected
  • US Core Retail Sales 5.1% expected
  • US Retail Sales 5.8% expected
  • US Philly Fed Manufacturing Index 41.0 expected
  • US Unemployment Claims 703K expected
  • Swiss Gov Board Member Maechler Speaks

You may access the times and dates in the economic calendar here.

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Janne Muta
Chief Market Analyst
TIOmarkets.com

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