Gold steadies as risk appetite continues to recover

Updated October 6, 2022

Headlines

*US dollar clings to gains as bets on near-term Fed hikes firm

*Oil rises to three-week high as OPEC+ agrees deep output cuts

*Fed’s stay-high mantra fails to stop bets on a 2023 rate cut

*Asian shares cautiously higher as US futures advance

FX: USD recovered from recent weakness trading to highs of 111.73. The DXY is currently trading around its 21-day SMA at 110.99 as attention turn to tomorrow’s US jobs data.

GBP halted its run of gains, falling to 1.1226 before closing above 1.13. The 21-day SMA is currently support at 1.1279. EUR bottomed at 0.9835. It is trading above the early September low at 0.9863. EUR/GBP touched 0.8691 but recovered strongly. It is trading above key support at the mid-June high of 0.8721.

USD/JPY peaked at 144.84 and continues to consolidate at the top of the recent range below 145. That is the presumed “line in the sand” for FX intervention. AUD dipped to 0.6416 but trades above 0.65 this morning.  USD/CAD came close to 1.37 before correcting to 1.36. NZD is looking to break to the upside above 0.5805.

Stocks: US equities ended the session moderately lower. This put a halt to the strong two-day rally amid upside in yields and a firmer dollar. The S&P 500 closed lower by 0.22% and the Nasdaq 100 lost 0.08%. Price action was mixed with selling pressure at the open. But then stocks gradually recovered with the S&P 500 reclaiming the 3,800 level at one point.

APAC stocks traded mixed in a choppy session. ASX 200 lacked direction, but downside was limited by strength in energy after the OPEC+ production cut. Nikkei 225 was positive with gains in exporter names and Rakuten leading the advance.  

The Euro Stoxx 50 futures are signalling a higher open, up +1.3%, after the cash market closed down 1.1%.  S&P 500 futures are in the green, hovering just below 3,800.

Event Takeaway – OPEC+ goes large, US not happy

Oil prices are holding onto their recent gains after OPEC+ planned to reduce production by two million barrels a day. This was at the top end of expectations though the actual cut will be closer to one million barrels as many smaller members are already producing below their targets. This was the biggest supply reduction since the peak of Covid and drew criticism from the US.

The ongoing energy crisis and uncertainty over Russian oil supply still linger over the market. Indeed, Russia may benefit from the decision with higher prices. Oil experts now expect the surplus in the first six months of next year to be more balanced. This means Brent trading around current levels with upside now seen in the second half of 2023.

Chart of the Day – Gold run pauses at resistance

Government bond yields have moved lower in recent days on hopes central banks will begin to ease away from hiking rates. The RBA’s smaller 25bp rate rise and softer US data, particularly the sharp drop in job vacancies, saw yields hit. The dollar has also come off its multi-decade highs. This prompted a surge in precious metals with gold embarking on a six-day win streak. All eyes will be on NFP tomorrow with a solid report expected.

The 50% point of the 2018 low and the August 2020 high at $1617 acted as support. Prices took out the $1680 zone and are currently trading at the top of the long-term bear channel. The 50-day SMA at $1723 and a Fib level also sit around here. A break higher targets $1734 and $1786.

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