DAILY MARKET OVERVIEW-19.03.2024
- 2024-03-19
The atmosphere of caution among traders is palpable, as the financial markets gear up for a week laden with five major central bank meetings and a slew of critical global economic data covering inflation, activity, sentiment, retail sales, and employment. BoJ is set to start this central bank bonanza on Tuesday, with RBA following suit. FOMC will then take center stage on Wednesday, with SNB and BoE concluding the week’s meetings on Thursday. Each of these gatherings carries some surprise elements that could significantly impact the markets.
Technically, Gold should have formed a short term top at 2194.84, and more consolidation should be seen in the near term. There is prospect of deeper pull back, in particular if Dollar strengthens after FOMC. But downside should be contained by 2088.24 resistance turned support to bring up trend resumption.
The impending global monetary easing this year and next, coupled with escalating geopolitical risks, presents a favorable backdrop for Gold. The precious metal should target cluster projection level around 2260 before topping (100% projection of 1810.26 to 2088.24 from 1984.05 at 2262.03 and 100% projection of 1614.60 to 2062.95 from 1810.26 at 2259.15).
GOLD
- Gold pulls back from its recent record peak
- Momentum indicators exit overbought conditions
Gold price started the day with a soft tone, falling to $2,163.58 during Asian trading hours, although grinding higher. XAU/USD trades around $2,158.00 in the American session, barely up on a daily basis. The US Dollar seesawed between gains and losses, but overall financial activity was limited amid upcoming central banks’ announcements. The Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ) will be the first to unveil their decisions early on Tuesday, focusing on the BoJ, as the central bank is expected to end its ultra-loose monetary policy.
However, the weekly macroeconomic calendar also includes the United States (US) Federal Reserve (Fed) and the Bank of England (BoE) monetary policy decisions. Also, Canada and the United Kingdom will release updates of their respective Consumer Price Index (CPI).
Meanwhile, government bond yields tick higher, limiting the US Dollar’s slide. The 10-year Treasury note currently offers 4.33%, up 3 basis points (bps) in the day and at fresh March highs.
Gold experienced a massive surge following its profound break above the 50-day simple moving average (SMA), posting a fresh all-time high of 2,195 on March 8. However, bullion has been undergoing a minor downside correction since then as it had approached extremely overbought conditions.
Should the pullback extend, the November peak of 2,142, which coincides with the 123.6% Fibonacci extension of the 2,079-1,810 downleg, could act as the first line of defence. Further declines could then come to a halt at 2,079, a region that provided resistance both in April and December 2023. Even lower, the 78.6% Fibo of 2,021 might provide downside protection.
On the flipside, if the price erases its recent setback and marches higher, initial resistance could be found at the 138.2% Fibo of 2,181 ahead of the all-time peak of 2,195. A violation of that zone could pave the way for the 150.0% Fibo of 2,213.
In brief, gold has been experiencing a pullback from its record high after reaching extremely overbought conditions. Should the price break below the 123.6% Fibo of 2,142, the decline could accelerate as there is no prominent support until the 2,080 region.
Will the BoJ raise rates on Tuesday?
The Bank of Japan will make its rate announcement on Tuesday and there is a strong possibility that the BoJ will lift interest rates out of negative territory. This would mark a sea-change in policy as the last rate hike occurred in 2007.
Japan is experiencing inflation after years of deflation, and speculation has been rising that the BoJ will pivot after years of an ultra-accommodative monetary policy. Governor Ueda has repeatedly stressed that the BoJ will not tighten until wage growth rises, as that would be evidence that inflation is sustainable.
The annual wage negotiations indicate a massive victory for workers, with wages set to rise as much as 5.2%. This could well be the signal that Ueda needs to hit the rate-hike trigger. The key question is whether the BoJ will raise rates on Tuesday or wait until April, which would provide the central bank with more data before making such a critical decision.
It’s a close call as to whether the BoJ will make the move on Tuesday or wait until April. Goldman Sachs is expecting that the BoJ will raise rates and also abolish its yield curve control policy which it uses to target interest rates levels.
EURUSD
The breakout of the March peak of 1.0981 (March 8) may push EUR/USD to challenge the weekly high of 1.0998 (January 11), strengthening the psychological barrier of 1.1000 and putting it ahead of the December 2023 top of 1.1139 (December 28).
On the downside, if the pair falls below the 200-day SMA at 1.0838, it might reach its 2024 low of 1.0694 (February 14). The November 2023 low of 1.0516 (November 1) is next, followed by the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the round level of 1.0400.
Meanwhile, additional gains are expected in the immediate term as long as EUR/USD remains above its 200-day Simple Moving Average (SMA).
The 4-hour chart shows that the downward trend has been renewed. That said, the initial level of support is 1.0866, ahead of the 200-SMA at 1.0828 and 1.0761. The next upward obstacle appears to be 1.0981, followed by 1.0998. The Moving Average Convergence Divergence (MACD) dropped to the negative ground, while the Relative Strength Index (RSI) fell below 33.
Further upward bias in the Greenback weighed on the riskier assets, lending further legs to the US Dollar Index (DXY) and keeping the price action around EUR/USD subdued well below the 1.0900 support.
In this context, spot reached multi-day lows in the 1.0870–1.0865 band, while the USD Index (DXY) flirted with the key 200-day SMA near 103.70.
The Dollar’s renewed strength coincided with another strong performance in US yields across various maturity periods, mirroring the upward movement seen in German 10-year bund yields, which rose to the vicinity of 2.50%.
Looking at the broader macroeconomic landscape, both the Federal Reserve (Fed) and the European Central Bank (ECB) are expected to begin their easing cycles, possibly in June. However, the pace of subsequent interest rate cuts may vary, potentially leading to different strategies for both central banks. Nevertheless, the ECB is not expected to significantly lag behind the Fed.
According to the FedWatch Tool provided by CME Group, the probability of a rate cut in June has now decreased to just above 50%.
Eurozone CPI was finalized at 2.6% yoy in February, down from 2.8% yoy in January. CPI core (excluding energy, food, alcohol & tobacco) was finalized at 3.1% yoy, down from prior month’s 3.3% yoy.
The highest contribution to the annual Eurozone inflation rate came from services (+1.73 percentage points, pp), followed by food, alcohol & tobacco (+0.79 pp), non-energy industrial goods (+0.42 pp) and energy (-0.36 pp).
All in all, the relatively sluggish fundamentals of the euro area, coupled with the resilient US economy, strengthen expectations of a stronger Dollar in the medium term, particularly as both the ECB and the Fed potentially implement their easing measures almost simultaneously. In such a scenario, EUR/USD could experience a more significant correction, initially targeting its year-to-date low around 1.0700 before potentially revisiting the lows observed in late October 2023 or early November in the 1.0500 region.
Prepared by: Mr. SAM KIMA, Senior Vice President