Major US indices drifted higher amid lighter trading volumes to provide a positive start to the new quarter, as we head into the Independence Day holiday. Overnight, the US Institute for Supply Management (ISM) Manufacturing PMI data was mixed with a slight underperformance (46 vs. 47 consensus). Some reasons for jubilation may have been a significant advance in pricing pressures for US manufacturers (41.8 vs. a consensus of 44.0) and some calm in hiring (48.1 vs a consensus of 50.8), but new orders have remained in contraction territory for the 10 consecutive months as a reflection of some downside risks to future growth.
Along with stronger-than-expected US construction spending, expectations remain strong that the Fed will make another 25 basis point hike later this month to end the rambling cycle. US Treasury yields closed higher despite the initial decline, while the US dollar continues to show some signs of exhaustion with a soft finish.
Gold prices have traded in a falling wedge pattern so far, with a move below the confluence of support at $1940 in mid-June this year suggesting sellers are taking control and leaving the near-term trend tilted to the downside. CFTC data revealed more unwinding of net long positions from money managers last week. So far, the RSI on the daily chart has also struggled to reclaim the 50 level. Immediate support at $1900 would be crucial to hold next, with some dip buying seen last week as a bullish pin bar formed. Failure to hold $1,900 could pave the way for a retest of $1,850 next.
Source: IG Charts
Asian Open Championship
Asian stocks appear set for a mixed open, with Nikkei -1.06%, ASX +0.12% and KOSPI -0.11% at the time of writing. A bullish surprise in China’s Caixin manufacturing PMI set the stage for some gains in Chinese stocks yesterday, with the Nasdaq Golden Dragon China up 2.1%, after a similar gain in Hang Seng in the previous session. The recent transitional move by China to restrict the export of chip-finished metals to the United States may take some focus, which could affect production in the long term rather than in the near term. While it raises prospects of further mutual escalation between the US and China, it may appear that the tensions are still calculated for the time being, as both economies are still trying to grapple with their own economic issues (US inflation, China’s growth).
The next day will focus on the RBA interest rate decision. While the 13-month low in Australian inflation data for May solidified views of a possible rate halt at the next meeting, markets still expect any upcoming pause to be a temporary move compared to the end of tightening. That will leave policymakers’ guidance under close scrutiny. Any acknowledgment of the recent downward surprise to inflation may raise hopes of a prolonged halt in the interest rate, but on the other hand, maintaining its steady stance for further tightening may be seen as optimistic and provides a rally for the Australian dollar.
AUD/USD is trying to bounce off the previous trend line that turned into support but is waiting for plenty of buyers, with the RSI still hanging below the 50 level while the 100 day moving average is acting as immediate resistance to overcome. Failure to maintain the trend line support over the coming days at the level of 0.658 could pave the way for a retest of the one-year low so far at the level of 0.646. On the upside, any recovery of the 100 day moving average would leave the key 0.680 level in check.
Source: IG Charts
On the watch list: New Zealand dollar / US dollar Trading in the descending channel pattern
Since the beginning of the year, the NZD/USD has been holding steady inside a descending channel pattern on the weekly chart, with the weekly RSI struggling to cross above the key level of 50 as a reversal of sellers’ control. The series of lower highs over the past year, along with the failure to move above Ichimoku Cloud resistance (weekly) in the past 3 interactions, has kept the downtrend in place for the time being.
With the New Zealand economy technically in recession ahead of the US, pressure may mount for a rate cut for the RBNZ versus the US Fed, as pockets of economic resilience remain in the US. The US Economic Surprise Index is currently hanging at a three-month high.
The immediate resistance for buyers might be at 0.625, where the resistance junction (Ichimoku cloud, upper channel trend line, downtrend line resistance) stands. Any recovery of 0.625 could pave the way for a retest of 0.654 after that. Until that happens, the current bearish bias remains intact, which could leave the lower channel support in check at 0.600.
Source: IG Charts
Monday: DJIA +0.03%; S&P 500 +0.12%; Nasdaq +0.21%, DAX -0.41%, FTSE -0.06%