Aussie, Aussie, Aussie – Jobs, jobs, jobs

Expect AUDUSD price action today to be heavily pre-occupied by December’s Employment Report (11.30am AEDT), given the report will be defining for market expectations leading into the RBA’s Feb. 4th rate decision. Market pricing currently looks split with an implied 48% probability the RBA cut at its next meeting.

We think Dec. likely sees a pullback from November’s substantial 39.9k increase in jobs, in line with previous years and Reuters consensus forecasts of 15k. And as always, we keep a watchful eye on the full-time and part-time split, with more full-time jobs AUDUSD positive.

AUDUSD continues to trudge below the 55d-MA and 200d-MA in a range-bound fashion. Multi-month trend support could kick into gear and see AUDUSD test higher, but will largely be dependent on the print. Cautious risk sentiment around the announcement has ASX lower 20pts at the open.

BoC more dovish than expected

USDCAD spiked ~70pips through 1.31 to hit January highs following an eventful BoC meeting, and despite an in-line Dec. CPI print. Poloz’s slight change to forward guidance emphasised the bank “will be watching closely to see if the recent slowdown in growth is more persistent than forecast”, and thus, be of greater data-dependency.

More neutral than expected communications had us believing the BoC were firmly on hold. But it looks like the combination of choppy data from October and a higher degree of uncertainty sees dovish risks come back into the fold. We maintain long CAD bias and think opportunity presents itself to get short EURCAD.

Sterling bounces on optimistic survey

GBPUSD cracked 1.31 overnight following a strong manufacturing CBI survey that lessened bets that the BoE cut rates on Jan. 30. The survey which captures manufacturing sentiment saw business optimism turn positive, jumping to +23. But interestingly, only had the level of total order books tick marginally higher to -22 from -28 (Dec.).

While this could be an overbought move in the short-term, especially with markets waiting to digest UK PMIs tomorrow. Ultimately, it falls in line with our longer-term 2020 thesis that GBPUSD could see greater portfolio inflows having been structurally underweight on Brexit risks.

Fears of a coronavirus breakout after Chinese authorities confirm a fourth death.
Gold looking to break higher – charts remain supportive.
GOLD PRICE (XAU/USD) BID AS PNEUMONIA OUTBREAK SPREADS
Chinese officials are investigating an outbreak of the deadly pneumonia outbreak – coronavirus – which has already claimed four victims and is now seen spreading outside China. The outbreak has spread from Wuhan already to Shanghai and Beijing and four cases have been reported in Japan, Thailand and South Korea. According to one newspaper a man has also been quarantined in Australia with the flu-like symptoms, with 291 new cases being reported in China.

Fears are that this airborne virus may prove as deadly as the SARS outbreak in China between November 2002 and July 2003 which resulted in over 770 deaths in over 30 countries. Risk markets turned lower again on Tuesday with European equity markets opening around 0.75% to 1.0% lower, while luxury good companies fell sharply on fears of disrupted sales.

The daily gold chart still suggests higher prices although a period of consolidation would help to strengthen this outlook. Gold has made a series of higher lows over the last week off the January 14 low of $1,536/oz. and earlier broke above the recent $1,563.5/oz. high that has capped upside momentum. The spot price trades above all three moving averages while the CCI indicator suggests that the market is neither overbought or oversold. If gold can consolidate above the prior high at $1,557/oz. then a fresh press higher becomes more likely, especially with risk markets turning broadly negative.

GOLD AND CRUDE OIL TALKING POINTS:
Gold prices remain supported even as stock markets rise
The low interest rates equity markets like also suit gold
Crude oil markets are still focused on Libya’s internal conflicts
Gold prices moved up to one-week highs even as Asian stock markets made gains on Monday. Risk appetite remains elevated as Wall Street closes in in on its largest and longest ever bull run but the interest rate environment still looks quite conducive for the non-yielding metal.

The US Federal Reserve will give its first 2020 monetary policy decision next week, on January 29. The market strongly suspects that rates are going nowhere and that they’ll remain on hold for the year. This prognosis is implicitly supportive of gold, even as riskier assets also like it. Higher rates mean higher returns on ‘risk free’ assets like US government debt which can tempt investors away from the metal.

What does it mean for price action?

Bank of America analysts noted on Friday that the US S&P 500 index is within 5% of posting its largest ever rise without a corrective bear-market fall of 20%. The 1990s saw the longest previous run but the index will surpass it if it can get to 3498. Much of the current rise has been underwritten by Fed assurances that the bar to rate-raising from here is very high.

The Chinese New Year break is coming up at the end of the week and, with long holidays widespread in the region investors may not want to be short of gold going into it.

LIBYA UNREST HAUNTS CRUDE OIL MARKET
Crude oil prices edged lower but were essentially rangebound through the Asian session as a new week got under way. Major producer Libya remains in focus after the shutdown of two major facilities there Friday sent prices up to one-week peaks.

This was only the latest development in a long internal conflict. Two rival groups have asserted the right to govern the country for more than five years. The National Oil Council reportedly said on Sunday that two big southwestern fields had begun shutting down following the closure of a pipeline by forces loyal to the national army.

Headlines from the region may well continue to dominate the market on Monday given the absence of major scheduled economic news.

GOLD TECHNICAL ANALYSIS
Gold’s daily chart clearly shows the metal’s resilience to revived risk appetite, with January’s rise to highs not seen since May 2013 still well within the bulls’ range.

Prices are attempting to break the top of their current range again, when last week it seemed that they were topping out well short of it. A conclusive break will probably see those bulls try for Jan 5’s closing high of $1569.32/ounce as an initial target. However given looming Asian holidays and the stretched nature of this market sustainable gains may be hard to come by above the range top, at least for another week or so. Market watchers should probably be prepared for a retreat back into the range, even if prices manage to get above it.

CRUDE OIL TECHNICAL ANALYSIS
Prices have bounced quite convincingly at the top of a band of support formed quite neatly by the third and fourth Fibonacci retracement levels of the rise seen between October 2019 and January this year. They come at $58.19/barrel (50% retracement) and $56.48 (61.8%).

Gold Prices Still Helped by Interest Rate Prospects Despite Stock Gains
Prices clearly bounced at the top of that band on January 15. Bulls can hope that the steep falls seen between January 6 and 13 will be clawed back as long as that support holds, but the process seems likely to be a gradual one.

GOLD AND CRUDE OIL TALKING POINTS:
Gold prices edged down again as markets looked to Wednesday’s trade deal signing
There may be some scope for disappointment, but markets are hopeful that more progress will be made
Crude oil was steady, with the market eyeing the possibility of increased demand
Gold prices continued to slip on Tuesday with overall global risk appetite still on the up as the markets eye an interim trade deal between China and the United States due to be signed in Washington on Wednesday.

The US has also dropped its designation of China as currency manipulator, which has lightened the mood still further, with markets sensing that there’s some chance of broadly improved relations between the world’s two largest economies.

A senior US Chamber of Commerce official tempered expectations somewhat when he was reported by CNBC as saying on Monday that the deal will ‘stop the bleeding’ but won’t provide an end to trade war as significant challenges remain.

Chinese trade data for December came in extremely strongly, with the country’s customs department saying that imports from the US had improved markedly- even before the deal is signed. Gold prices slipped a little after the data although, paradoxically, so did Chinese stocks. In a world worried about Chinese debt levels, strong numbers can be seen as ‘bad news’ to the extent that they might stay Beijing’s stimulus and make it harder for borrowers to roll their commitments over.

GOLD TECHNICAL ANALYSIS
Gold prices have clearly also shed their Iran-related gains, but they remain comparatively elevated, a fact perhaps at odds with the risk appetite evident elsewhere.

Falls have so far been arrested close to the top of an admittedly broad trading range which, with small exceptions, has bounded activity since August 2019. Still, prices remain close to levels not previously seen since 2013, and support from last September in the $1522 area will likely hold the bears should prices break back into their former range.

CRUDE OIL PRICES STILL SURPRISINGLY WEAK ON DAILY CHARTS
Crude oil prices were steady meanwhile, with that trade deal very much the market focus. China and the US remain after all by far the world’s biggest two national energy consumers so the prospect of increased demand from both is a powerful prop, especially as traditional producers have cut supply.

US inventory data this week are expected to show further drawdowns too, according to an influential survey from Reuters and this expectation may also be supporting prices.

CRUDE OIL TECHNICAL ANALYSIS
US crude oil prices have fallen sharply since markets began to judge that there was little chance of escalating military conflict between the US and Iran.

Given the rather broader market optimism seen elsewhere it is perhaps a little surprising that prices should now be flirting with the bottom of their uptrend channel and its is plausible to suggest that the removal of Iran-related risk premiums has perhaps gone a little far, given the market’s obvious vigor before the Iran story broke at all.

Still for now prices are flirting with 50% Fibonacci retracement of the rise from October’s low’s to this month’s peaks. That comes in at $58.19/barrel and a break below this on a daily or weekly closing basis would probably see that uptrend channel broken too. Still, the market looks a little oversold right now and, given that increased risk appetite elsewhere, a bounce back well into the channel may be seen assuming Wednesday’s trade deal doesn’t disappoint.