There’s nothing quite like a volatile whipsaw to snap traders out of a lull, and that is exactly what we saw on gold and silver prices on Thursday, during a day of heavy losses. While I suspect price action to remain choppy, I also think they’ll grind lower from here.
By : Matt Simpson, Market Analyst
Inflationary pressures are alive and well, with US producer prices surprising to the upside, helping the US dollar climb for a fifth day and win top spot for currency strength on Thursday. Core producer prices remained at a 20-month high of 3.4% y/y in November, as September’s figures was revised up from 3.1% to 3.4%. Regardless, Fed fund futures continue to price in a Fed cut next week with a near 95% probability. Although the next 25bp cut is not expected to arrive until March, with a less convincing 52.1% probability.
- The US yield curve was higher, with the 2-year up 4bp (basis points) and the 10-year rising 6bp
- USD and AUD were the strongest FX majors, CHF and GBP were the weakest
- USD/CHF closed above 0.89 and rallied 1% during its best day in five weeks
- AUD/CAD closed to its highest level since April 2020
- GBP/USD closed to a 6-day low
- AUD/USD closed flat after handing back earlier gains made on a stronger-than-expected employment report
- Gold futures formed a bearish outside day during its worst day in 12
The ECB cut their interest rate by 25bp to 3%, to mark their fourth such move this year. They also kept the door open for further cuts next year, although reiterated that they are not on a preset path for easing. Weak growth and threats of a new US trade war will certainly keep them on guard for further cuts. However, by removing an earlier promise to keep policy sufficiently restrictive, it could mark a return to a more neutral setting.
EUR/CHF rose 0.7% during its best day in four month while EUR/GBP snapped a 4-day losing streak at its 10-month low. Yet the stronger dollar kept EUR/USD in check and closed below 1.05 for a second consecutive day
Click the website link below to get our Guide to central banks and interest rates in Q4 2024.
Economic events in focus (AEDT)
- 10:50 – JP Tankan survey (Q4)
- 11:01 – UK GfK consumer sentiment survey
- 15:30 – JP capacity utilisation
- 18:00 – UK construction output, industrial production, manufacturing production, trade balance, GDP m/m
- 20:30 – UK inflation expectations
- 21:00 – EU industrial production
Gold, silver, copper futures positioning – COT report
Net-long exposure to gold futures topped out four weeks ahead of prices. So while we’ve seen a rise of net-long exposure over the past two weeks, I’m not convinced it will power ahead of a new high of its own. And that makes me doubt that prices will simply stampede their way to a new high.
And if gold struggles to it new highs, so will silver. Also note that net-long exposure to silver and copper futures have continues to drift lower, which again points towards capped gains for metals in my view.
Click the website link below to get our exclusive Guide to gold trading in Q4 2024.
Gold, silver, copper technical analysis:
A bearish outside day formed on gold futures which now relegates Wednesday’s break above 2748 as a fakeout. And it’s not the first time we’ve seen a volatile reversal around similar levels in recent history, as a larger bearish engulfing candle formed in late November. Should the US dollar continue to outperform and the Fed’s meeting be more hawkish than expected, then a move down to the 2663 HVN (high-volume node) seems likely. With that said, December does tend to be a bullish month for gold, and with evidence of whipsaws elsewhere then traders may be better looking at markets on a ‘er day’ basis for their direction.
A large bearish outside day formed on silver futures, with its 4% decline marking its worst day in five weeks. The market also struggled around the $33 area back in September, so history does appear to be repeating. However, with so much congestion zones and the 100-day SMA below, bears may want to wait to see if prices retrace within Thursday’s bearish range, as it could potentially increase the reward to risk ratio.
A bearish hammer formed on copper futures for a second consecutive day, although it was also a bearish outside day which met resistance at the 100-day SMA and 50% retracement level. Volumes also increased for a second day, with Thursday’s trading volume being its highest in 7 days to add weight to the bearish candles.
View the full economic calendar
– Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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