Sitting in Front of The Bayley Manifesto, The Center of Resistance

Spot Gold (XAU/USD) has indeed shaped the corrective decline from its key short-term resistance of US$1,972 mentioned in our report and hit the US$1,932/1,920 support zone (printed an intraday low of US$1,931) on last Monday, 13 November.

Thereafter, the price actions of Gold (XAU/USD) have shaped a strong bullish reversal movement which in turn increases the odds that the corrective decline of -3.8% from the 27 October 2023 high of US$2,009 to 13 November 2023 low may have ended.

Several key technical elements and Intermarket analysis now suggest the Gold (XAU/USD) is likely undergoing another potential multi-week impulsive upmove sequence to retest its current all-time high of US$2,075 in the first step.

The 10-year US Treasury real yield has shed -50 basis points (bps) from its 23 October 2023 high of 2.61% to yesterday, 20 November low of 2.11%; its steepest decline since the period of 9 March 2023 to 6 April 2023.

Technically speaking, medium-term momentum has turned bearish for the 10-year US Treasury real yield which increases the odds of a further slide at this juncture toward the long-term pivotal support zone of 1.82%/1.73% (also the lower boundary of the ascending channel from 6 April 2023 low & the 200-day moving average).

Hence, a further slide in the longer-term US Treasury real yield implies a lower opportunity cost of holding Gold as it is a non-interest bearing which in turn may increase its “relative attractiveness” and drive-up demand.

The price actions of Gold (XAU/USD) have shaped a strong weekly bullish candlestick last week that closed more than 50% of the long bearish Marubozu weekly candlestick for the week of 6 November 2023.

In addition, the daily RSI momentum has staged a rebound from its 50 level, indicating a revival of medium-term bullish momentum.

These observations suggest a significant change of sentiment from bearish to bullish that in turn advocates a potential terminal end to its short-term minor corrective decline from 27 October 2023 to 13 November 2023.

Yesterday's price actions of Gold (XAU/USD) have shaped a minor pull-back of -1.4% from last Friday, 17 November high of US$1,993 before it staged a bullish reversal right at its 20-day moving average.

If the US$1,972 key short-term pivotal support holds, the minor short-term uptrend from the 13 November 2023 low remains intact. The next immediate resistances to watch will be at US$2,006 and US$2,028/US$2,037 (minor swing high area of 11 May 2023 & Fibonacci extension from 13 November 2023 low).

However, a break below US$1,972 negates the bullish tone for a pull-back towards the US$1,957 intermediate support.

The US bonds extended their rally after a relatively strong US 20-year bond auction. The US 20-year yield tanked to 4.70% from 5.40% back in October. The US 10-year yield slipped below 4.40%, while the 2-year yield, which captures the Federal Reserve (Fed) bets, remained steady near 4.90%. The significant fall in US long-term yields compared to the short-term yields widens the yield spread across the US yield curve. The gap between the US 2 and 10-year yield is back above 50bp. That means that the recession odds are mounting – again – according to the usual interpretation of a yield curve inversion. Investors accept lower yields for longer-term papers as they price in a higher possibility of economic slowdown and recession. The latter also boosts the odds for the first Fed rate cut in a few months from now. Activity on Fed funds futures price in more chance for a rate cut in the Fed's May meeting than otherwise. On a side note, the fact that the 20-year auction came right after the US government averted a shutdown (hence the risk of another rating cut) also explained why the US 20-year auction was much better than the 10 and 30-year auctions which were conducted before the latest US CPI report, and amid the uncertainty of yet another possible government shutdown.

Now expect the Fed minutes, due later today, to be much less exciting for bond traders. The Fed minutes will come as a reminder that the falling long-term yields were a major reason why the Fed decided to keep rates steady at the latest meeting. Tanking yields mean that the Fed must stay alert. And it's not only the Fed! The European Central Bank (ECB) Governing Council Perre Wunsch warned yesterday that the bets on ECB rate cuts are raising the possibility the central bank will hike the borrowing costs again – to make sure that the financial conditions don't loosen before time. In vain. Yields in Europe continue falling despite warnings, as well, and global stocks continue to surf on persistent fall in long term yields. The Stoxx 600 index tests the 200-DMA to the upside, the S&P500 extended gains yesterday to a fresh high since summer, while the rate-sensitive Nasdaq hit the highest levels since January 2022. Microsoft and Nvidia hit fresh records.

Nvidia is due to release earnings after today's closing bell. The company will attempt to beat its own prediction of $16bn sales in the Q3, up from $13.50bn a quarter earlier and around $10bn more than the Q3 of last year. Even though the S&P500 CEOs cut down their mentions of AI in earnings call, the gap between the demand and supply for Nvidia chips is comfortably large to allow the company to grow at desired pace. Better-than-expected results could send Nvidia to a fresh high, but anything less than stellar is poised to trigger substantial profit-taking. If confidence falters, the $500 psychological benchmark becomes an attractive target for sellers. The US-China chip war and the US curbs on advanced chip exports to China are the major sticky points for future sales projections.

In both cases, expect volatility in the wake of the earnings announcement of the year's most loved and intriguing company. Options trading implies that we could see a positive or a negative swing of around 8% after the earnings report hits the ground.

Elsewhere, HP, Lowe's and Best Buy will also expected to report earnings today and their sales are expected to have slowed due to weaker consumer and corporate spending.

GBP/USD is looking to resume its bullish trend as the price is creating the third consecutive green day, surpassing the 200-day simple moving average (SMA) and the 1.2500 psychological mark. Also, the pair rose to its highest level of the last two months, with the technical oscillators suggesting strengthening upside momentum.

The RSI is above its 50 neutral mark and is approaching the overbought region, continuing the uptrend after it bottomed on September 27, while the MACD is keeping its footing above its trigger line within the positive area, both reflecting that buyers are still active.

If buyers stay in control, the door will open for the 1.2545 resistance level and the 50.0% Fibonacci retracement of the down leg from 1.3140 to 1.2035 at 1.2590. Running higher, the pair will have to face the 61.8% Fibonacci at 1.2720.

Should the bears press the price below the 38.2% Fibonacci of 1.2460 and the 200-day SMA, this may result in an aggressive downfall towards the 23.6% Fibonacci of 1.2300. If the latter gives away too, the decline could continue towards the bullish crossover between the 20- and the 50-day SMAs at 1.2250.

The dollar continues to edge lower as investors scale back long-held positions ahead of Thursday's Thanksgiving US public holiday. We are going through a relatively benign phase for global asset prices currently, where even last night's 20-year US Treasury auction went better than expected and temporarily parks concerns over the US fiscal trajectory. The auction results saw US yields drop 4-5bp at the long end of the curve and have helped the further paring back of short positions in the yen. Tokyo will be delighted by this move in USD/JPY.

For today, the focus will be on US October existing home sales data and then the 8:00 pm CET release of the FOMC minutes of the 1 November meeting. On the former, ING's US economist is looking for a sub-consensus 3.88mn unit, which would mark the lowest reading since 2010. Driving that low number will be near 8% 30 year mortgage rates and evidenced by low mortgage application data. Should the data come out in line with our thinking it should be dollar negative, showing that rate hikes are working.

Late in the day, investors will pore over the FOMC minutes. These were the minutes in which the Fed included the tightening of financial conditions as likely to weigh on activity. The market looks in the mood to grab any less hawkish headlines and any signals suggesting that the Fed might be done tightening would be read negatively for the dollar.

DXY traded below support at 103.45 overnight (now resistance) and could drift towards 102.95/103.00 and possibly 102.55 depending on today's data and the minutes.

Not many, ourselves included, expected USD/CNH to be trading back at these 7.14 levels so soon. Our thinking had been that while Chinese authorities did not want the renminbi any weaker - and were defending USD/CNY at 7.30 - equally they did not want it much stronger as they tried to reflate their sluggish economy.

Yet two factors have driven the renminbi stronger today. The first is the People's Bank of China (PBoC) delivering a much lower USD/CNY fix than expected. This suggested that it was not merely happy for USD/CNY to return to the 7.17 level where it has printed for the last couple of months, but wanted it lower still, hence today's 7.14 fix. Additionally, the PBoC drained liquidity when it did not need to, which could be read as a further attempt to squeeze out those holding short renminbi positions.

It is unclear how much lower Chinese authorities would like USD/CNY to be and local authorities cannot necessarily rely on a broadly soft dollar environment for long. But for the short term, we think these moves can lift the Asian FX bloc in general and add to the current soft dollar environment.

EUR/USD probably surprises many by edging close to the 1.10 level. And the large weight of the dollar in the European Central Bank's euro trade-weighted index also means the euro has retraced half of its drop since July without any major (positive) re-assessment of the region's growth prospects.

We would again expect the dollar story to dominate today. Some soft US existing home sales data is probably the best chance of EUR/USD breaking 1.0960/65 resistance and testing 1.10. But without short-dated US yields starting to break substantially lower – e.g., US two-year Treasury yields remain at 4.90% – we would be reluctant to chase EUR/USD too much above 1.10. Equally, as we mentioned yesterday, another poor set of European PMI readings on Thursday could again pull the rug from under the euro.

The eurozone data calendar is very light today and in terms of the ECB story, it looks like investors may be jumping the gun on expectations for the first ECB cut. The market now prices 33bp of easing by the June meeting.

Today we have monthly data in Poland for October, including industrial production, PPI and the labour market. And more data will come tomorrow. Overall, we should see confirmation of the economic recovery in Poland in the fourth quarter. Later today we will see the decision of the National Bank of Hungary (NBH). In line with the market, we expect another rate cut of 75bp to 11.50%. This intention was communicated in advance by the NBH deputy governor last week, so we don't have much uncertainty here. But we will still watch the press conference to see how confident the central bank is about the next steps.

The zloty reached another record-strong level yesterday with EUR/PLN 4.360 and this time it was accompanied by a rise in market rates. PLN should thus hold gains this time longer than during last week's attempts. Unless today's data disappoints, we expect higher rates to further drive PLN to stronger levels. The next target here is thus clearly 4.340 EUR/PLN. Looking forward, although we expect further gains here, it is likely to be slower given positioning and the shrinking potential for market rates to go up.

The forint jumped above 380 EUR/HUF yesterday for the first time since the beginning of the month, a day before the central bank meeting. As we have mentioned in the last few days, the relationship between rates and FX is resuming and yesterday it was on full display. Moreover, the market continues to price in more and more rate cuts, which is in line with our forecast. However, the impact on FX here is unclear. If the market wants to catch up with the divergence in recent weeks, it would mean a significant sell-off in HUF. This is unlikely to be the case, but we could still see further losses today with the NBH's confirmation that rate cuts are continuing. However, in the medium-term, we remain positive on HUF. Weaker levels may clear heavy positioning for another rally later in our view.

An escalation in the Israel-Gaza war could hamper Israel's gas supplies to Egypt and Jordan, exposing the North African nation to the risk of long-term shortages amid tight global supply, S&P Global has said.

In its worst-case scenario of an escalation of the continuing war beyond Gaza's borders and damage to export pipeline infrastructure, gas supplies from Israel will dry up, S&P said in a report.

"We believe if that were to happen, Israel's gas exports could stop completely and we don't think many producers in the GCC would be able to fill that gap, since most of their gas production is already under contract," S&P analysts said.

"This could leave Egypt facing a long-term shortage at a time when supply is already tight."

The Israel-Gaza war, which has become a major humanitarian crisis, is further fanning uncertainty in the global economy.

A flare-up of the conflict could disrupt shipping operations through the Strait of Hormuz, limiting energy supplies from the region, which could further slow economic growth momentum already marred by stubborn inflation and high borrowing costs.

Disruption of Israeli gas supplies will add to pressure on the Egyptian and Jordanian economies, both already experiencing a slowdown in the tourism sector, a key source of foreign exchange for each.

An escalation in the war that broke out on October 7 could also have serious consequences for the broader Mena economies, including Israel's.

However, the S&P base-case scenario expects the war to be largely contained to Israel and Gaza and not last more than three to six months.

Gas production at the Tamar plant had briefly been halted due to its proximity to Gaza.

"We understand production resumed [on] November 9 but the shutdown illustrates the potential repercussions of the war for Israel's gas projects and importers of Israeli gas," S&P said.

Since 2020, Israel has provided almost all of Jordan's natural gas supply and 5 per cent to 10 per cent of Egypt's, the ratings agency said, citing its Commodity Insights data.

"Yet S&P … believes Egypt's gas supply is more exposed than Jordan's because Jordan has an unused LNG [liquefied natural gas] plant and an offtake agreement with Israel."

Israel produced about 22 billion cubic metres of natural gas in 2022, about 1 per cent of the global total. It exported a combined 9bcm to Egypt and Jordan, according to S&P data.

Most of Israel's gas production comes from offshore fields in the Mediterranean Sea.

Last year, the Leviathan field produced about 11bcm, Tamar about10bcm and the Karish Main field about 300 million cubic metres.

Production at the offshore Leviathan field has continued but with reduced exports to Egypt and its output is being prioritised for domestic use in Israel.

"The export route to Egypt – the East Mediterranean Gas pipeline – ceased operations when operations at the Tamar field were suspended, with gas now being rerouted to Egypt through Jordan via the Arab Gas Pipeline," S&P said.

Risks to global energy security depend on what happens next in the war, the report cautioned.

"Although energy prices remain volatile amid conflict in the region, we do not foresee a meaningful gap in the supply of oil and gas globally," S&P analysts said.

"Risks for global energy relate more to the possibility of an impediment to supply through the Strait of Hormuz if there is further escalation … [as] about 30 per cent of the world's seaborne oil and one fifth of global LNG supplies, mostly from Qatar, flow through this channel."

Japanese Yen's rally continued in today's Asian session, breaking through 148 mark against Dollar. This rise raises questions about the reaction of Japanese Finance Minister Shunichi Suzuki, particularly in light of his previous comments during Yen's decline this year. Suzuki had described the decline as "one-sided" and driven by "speculations." The current volatility, contrasting the steady depreciation since August, could be seen as "excessive," but it remains to be seen if Suzuki will comment similarly on this rapid ascent.

A key question for market analysts is the extent and nature of the Yen's rise. It's unclear whether this represents a mere correction to the year's downtrend or signals a more fundamental reversal. Chinese Yuan's movements could provide clues here, as USD/JPY and USD/CNH have mirrored each other for two years. With USD/CNH falling to its lowest level since July and approaching key 7.154 cluster support level, a decisive break could indicate a bearish trend reversal, potentially serving as a leading indicator for USD/JPY.

In the broader currency markets, New Zealand and Australian Dollars emerged as strong performers, followed Yen. Australian Dollar, in particular, is finding support from hawkish minutes released by RBA. These minutes highlighted the central bank's prioritization of inflation control, aligning with its latest rate hike decision. The emphasis on fighting inflation keeps the odds of another hike in Q1 alive.

Dollar, on the other hand, is currently the weakest performer as the market shifts its focus to the upcoming FOMC minutes. Substantial hints about future moves might not be forthcoming. Fed is expected to maintain its narrative of keeping rates high for as long as necessary. The December FOMC meeting, featuring new economic forecasts and dot plots, is anticipated to be more impactful in shaping expectations.

Canadian Dollar trails as the second weakest, with markets awaiting Canada's CPI data. This report is crucial as it is the last before BoC decision on December 6. Expectations are for further progress in disinflation, with core measures slowing. Any downside surprises in today's CPI data could solidify expectations of a BoC rate hold in the upcoming meeting.

In Asia, at the time of writing, Nikkei is down -0.02%. Hong Kong HSI is up 1.00%. China Shanghai SSE is up 0.46%. Singapore Strait Times is down -0.28%. Japan 10-year JGB yield is down -0.0415 at 0.702. Overnight DOW rose 0.58%. S&P 500 rose 0.74%. NASDAQ rose 1.13%. 10-year yield dropped -0.019 to 4.422.

Richmond Fed President Thomas Barkin, in an interview with Fox Business overnight, noted the positive aspects of the current economic situation, stating, the economy is "still growing" while unemployment is "still 3.9%", and "inflation does to be settling". "he added, "all that's good".

Despite these encouraging signs, Barkin emphasized that Fed's work on bringing inflation down is far from complete. "But the job's not done, and so you have to keep on until you get the job done, and we'll see where we land," he remarked.

Central to Barkin's focus, and by extension, Fed's, is the objective of returning inflation to the central bank's target. "Inflation convincingly coming back to target — that's my marker. And you can get there a lot of different ways," Barkin elaborated.

He also expressed a desire to see a return to the pre-pandemic economic environment, where excessive price increases were not commonly used as a management strategy. "But I'm still looking to be convinced that price-setters in this economy have gotten back to where they were three or four years ago, which was an understanding that above-normal price increases just weren't a management lever."

BoE Governor Andrew Bailey, in his remarks at an event overnight, has strongly indicated that the central bank is not yet in a position to consider reducing interest rates, stating it was "far too early to be thinking about rate cuts".

He warned about the persistently high services inflation and noted that wage growth remains "elevated." He added, when inflation is high, we take no chances."

In his remarks, Bailey pointed out that the Monetary Policy Committee's latest projections suggest that restrictive monetary policy stance will likely be necessary for "quite some time yet".

Bailey also stressed the need for vigilance regarding inflation trends, indicating that BoE remains open to further interest rate increases if necessary. "We must watch for further signs of inflation persistence that may require interest rates to rise again," he cautioned.

RBA Governor Michele Bullock, speaking at the Australian Securities and Investments Commission Annual Forum, emphasized the persistent challenge of inflation for the Australian economy. Bullock forecasted that inflation would remain a "crucial challenge" for the next "one or two years," highlighting the complexity and longevity of the problem.

Bullock addressed a common misconception about the current inflationary environment, stating, "There is a bit of a perception around that the inflation at the moment really is all a supply driven thing – petrol prices, rents, these sorts of things, energy." However, she clarified that there is also a significant "demand component" contributing to inflation, which central banks globally are striving to manage.

Governor Bullock also touched upon global issues, noting, "In a world of fragmentation and conflicts … We're going to see more potential for supply shocks." She explained the dilemma central banks face regarding such shocks: while the typical approach is to look through temporary supply shocks, a continuous stream of them can lead to entrenched inflation expectations. Bullock warned, "If inflation expectations adjust, then that's a problem."

RBA meeting minutes from November 7 reveal a decisive step in monetary policy adjustment, with a 25bps increase in cash rate to 4.35%. This move reflects the RBA's heightened focus on managing inflationary pressures and aligning with its long-term targets.

The members' discussion was centered around two options: raising the cash rate or maintaining it at its current level. The decision to increase the rate was influenced by the consensus that this was the "stronger" course of action.

Achieving inflation targets by the end of 2025 played a significant role in the decision-making process. RBA members acknowledged an increased risk of not meeting these targets, suggesting the necessity of a prompt policy response.

The minutes also reveal a strategic consideration of future scenarios. Delaying the rate adjustment was seen as potentially necessitating a "larger" policy response in the future, especially if inflation pressures intensify.

Preventing a significant rise in inflation expectations was another critical concern. The RBA aimed to avoid any shift in market sentiment that could destabilize inflationary trends. This is particularly relevant given the Board's emphasis on "low tolerance" for delayed inflation target achievement.

Also, staff's inflation forecasts, which anticipated one or two rate rises, further underscored the necessity of the rate hike.

New Zealand's trade figures for October have shown significant decrease in both goods exports and imports, leading to a narrowed monthly trade deficit. Exports fell by NZD -552m, or 9.3% yoy decline, totaling NZD 5.4B. Imports also saw a substantial drop of NZD -1.2B, or -14% yoy, to NZD 7.1B. Trade deficit consequently narrowed from NZD -2425m to NZD -1709m, which is larger than expected deficit of NZD -1150m.

A significant aspect of these shifts was the marked decrease in both exports and imports to and from China. China, being New Zealand's top trading partner, saw the highest monthly fall in exports with a decrease of NZD -308m, amounting to – 19% reduction. This decline was echoed in imports from China, which fell by NZD -353m, a decrease of -18%.

Other key trading partners also showed varied trends. Exports to Australia decreased by NZD -128m (-15%), and to EU by NZD -84m (-24%). In contrast, exports to US slightly increased by NZD 2.9m (0.5%), and to Japan by NZD 25m (9.3%).

In terms of imports, apart from China, EU and US also registered significant drops, with decreases of NZD -138m (-11%) and NZD -146m (-20%), respectively. Imports from Australia and South Korea saw reductions of NZD -35m (-4.4%) and NZD -133m (-23%), respectively.

Swiss trade balance and UK public sector borrowing will be released in European session. Later in the day, Canada CPI and FOMC minutes are the main focuses.

AUD/USD rises further to 0.6585 so far as rally from 0.6269 continues today. Intraday bias stays on the upside at this point. Current development argues that whole decline from 0.7156 has completed with three waves down to 0.6269. Further rally should be seen to falling channel resistance (now at 0.6676) next. On the downside, below 0.6533 minor support will turn intraday bias neutral first. But risk will stay on the upside as long as 0.6451 support holds.

In the bigger picture, there is no confirmation that down trend from 0.8006 (2021 high) has completed. While current rebound from 0.6269 might extend higher, it could be the third leg of the corrective pattern from 0.6169 (2022 low) only. For now, medium term bearishness will remain as long as 0.6894 resistance holds.