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The 10Y UST yield is closing in on the 4% mark as if a weak jobs report tomorrow was a given. But underlying is also a further slide of inflation expectations. The front end is lagging, however, and being already priced aggressively for cuts, it will probably need these to become more imminent to rally further. Rates continue to decline but the front end is lagging Market yields continued to drop with the 10y UST sinking to 4.11% and 10Y Bund to 2.2% yesterday. The driver was a weaker ADP private payrolls report, though some will point out that the correlation with the official payrolls data that is due tomorrow is actually negative. Possibly more relevant for the broader picture was the 5.2% figure for third-quarter productivity growth. It facilitated a 1.2% fall in unit labour costs, which is a positive impulse for a Fed still showing concern on inflation. Another supporting factor was a further decline in oil prices, which saw WTI fall below US$70/bbl. This picture of a reassessment of inflation as a driver does gel with a further slide in inflation swaps, in the US by more than 7bp in 2Y and close to 5bp in 10Y. In… Read More »Rates continue to decline but the front end is lagging

Gold price is consolidating the previous recovery above $2,020 early Thursday. US Dollar is sitting at three-week highs, as US Treasury bond yields look to stabilize. Gold price looks vulnerable on the 4H chart, focus shifts to US Nonfarm Payrolls. Gold price is holding the previous recovery above $2,020 early Wednesday, as sentiment remains weak and the United States Dollar (USD) takes a breather from a three-day uptrend. The focus shifts to the US weekly Jobless Claims data on Thursday, as Gold traders gear up for Friday’s all-important Nonfarm Payrolls release.   All eyes remain on US jobs data for fresh Gold price impetus Gold price is trading with caution even though Asian stocks remain in the red, as the US Treasury bond yields have paused their run of losses in Thursday’s trading so far. However, Gold price appears to find some support from a steady US Dollar. The US Dollar has entered a phase of upside consolidation, having hit a new three-month high against its main competitors on Wednesday at 104.23. The Greenback extended its winning streak, despite falling US Treasury bond yields, as traders ramped up interest rate cut bets for other central banks. Markets are pricing around an… Read More »Gold Price Forecast: XAU/USD upside appears limited ahead of Friday’s US Nonfarm Payrolls

Markets Get out the popcorn, it could be an entertaining 48 hours as traders jockey for position into and eventually out of the granddaddy of all economic releases, US Non-Farm Payrolls. U.S. equities closed well off interday highs even as Treasury yields continued to decline. While surprising to some, it’s intuitive to others who are sounding the “careful what you wish for” alarm on the back of a softer tier 2 employment data ahead of Friday’s Non-Farm Payrolls (NFP) reading. Without stating the obvious, the U.S. labour market is showing signs of contracting much faster than expected. This is not necessarily a “risk-on” panacea, especially if the downward momentum in the jobs markets picks up a good head of steam. While ADP’s historical accuracy as a predictor of NFP has been weak post-pandemic*, most traders (Carbo-based) (unlike news reading algorithms) do not place much weight on the ADP miss. Still, on the surface, Wednesday’s data can be seen as another piece of the labour market rebalancing puzzle and underscores the dovish message conveyed by Tuesday’s JOLTS release.  But investors are likely cautiously awaiting the more comprehensive labour market data from the NFP report scheduled for release on Friday before making… Read More »Get out the popcorn as NFP enters the purview

After encouraging inflation data in early summer, progress stalled in August and September amid robust consumer activity. But with tighter financial and credit conditions set to weigh further on corporate pricing power, supplemented by slowing rents and falling gasoline and used car prices, we expect to see inflation move close to 2% in 2Q. Progress being made, but the Fed wants much more At the recent FOMC press conference, Federal Reserve Chair Jerome Powell said that the economy has “been able to achieve pretty significant progress on inflation without seeing the kind of increase in unemployment that has been very typical of rate hiking cycles like this one”. Nonetheless, there was the acknowledgement that “the process of getting inflation sustainably down to 2% has a long way to go”. Headline US consumer price inflation has indeed fallen sharply from a peak of 9.1% year-on-year in June 2022, hitting a low of 3% in June 2023. However, this stalled in August and September with the annual rate rebounding to 3.7% as higher energy costs and resilience in some of the core (ex-food and energy) components re-emerged amid a strong summer for consumer spending. The annual rate of core inflation has continued to soften from a peak of… Read More »US could soon see 2% inflation

XAU/USD Current price: $2,029 XAU/USD rose after being able to hold above $2,010. The stronger Dollar keeps the upside limited, despite lower yields. Gold needs to rise above $2,045 to improve the short-term outlook. Gold spot rose, offering signs of stabilization after the sharp reversal from record highs above $2,130 to $2,008 (Dec 5 low). It is consolidating near the $2,030 support level, on the back of lower Treasury yields but lacking upside momentum amid a stronger US Dollar. Data released in the US on Wednesday included the ADP employment report, which showed an increase in private payrolls by 103,000, below the market consensus of 130,000. The Unit Labor Cost data indicated a decline of 1.2% during the third quarter. Despite these figures pointing to a more balanced labor market and less inflationary pressures, the US Dollar remained resilient. More US employment data is due on Thursday, with the weekly Jobless Claims, and on Friday, the critical Nonfarm Payrolls report will be released. While the numbers are expected to show further softness, the impact on the US Dollar has been limited so far and has not significantly altered the positive momentum. Even the decline in the 10-year Treasury yield to… Read More »Gold Price Forecast: XAU/USD faces mixed risks, fails to capitalize on lower yields

AUD/USD Current Price: 0.6563 Australia’s Q3 GDP growth came in at 0.2% compared to the previous quarter, below the expected 0.4%. The US ADP report came in below expectations; Jobless Claims are due on Thursday, followed by NFP on Friday. The AUD/USD rebounded but still faces bearish pressure. The AUD/USD rose modestly after experiencing sharp declines over the past two days. The pair reached a peak at 0.6599 on Wednesday but then retraced, trimming gains and indicating ongoing bearish pressure. Despite lower Treasury yields and softer labor market data, the US Dollar remained firm. On Wednesday, Australia reported that Gross Domestic Product (GDP) expanded by 0.2% during the third quarter, below the 0.2% of the previous quarters. The annual growth rate came in at 2.1%, slightly higher compared to Q2 but largely reflecting revisions to previous quarters. While the figures did not have a significant impact on markets during a quiet session, they provide evidence of a slowing economy. As data continues to soften and inflation moves in the right direction, the markets do not anticipate more rate hikes from the Reserve Bank of Australia (RBA). Price expectations are starting to reflect potential rate cuts by mid-2024. On Thursday, Australia… Read More »AUD/USD Forecast: Aussie finds support at the 20-DMA, risks remain to the downside

XAU/USD Current price: $2,029 XAU/USD rose after being able to hold above $2,010. The stronger Dollar keeps the upside limited, despite lower yields. Gold needs to rise above $2,045 to improve the short-term outlook. Gold spot rose, offering signs of stabilization after the sharp reversal from record highs above $2,130 to $2,008 (Dec 5 low). It is consolidating near the $2,030 support level, on the back of lower Treasury yields but lacking upside momentum amid a stronger US Dollar. Data released in the US on Wednesday included the ADP employment report, which showed an increase in private payrolls by 103,000, below the market consensus of 130,000. The Unit Labor Cost data indicated a decline of 1.2% during the third quarter. Despite these figures pointing to a more balanced labor market and less inflationary pressures, the US Dollar remained resilient. More US employment data is due on Thursday, with the weekly Jobless Claims, and on Friday, the critical Nonfarm Payrolls report will be released. While the numbers are expected to show further softness, the impact on the US Dollar has been limited so far and has not significantly altered the positive momentum. Even the decline in the 10-year Treasury yield to… Read More »Gold Price Forecast: XAU/USD faces mixed risks, fails to capitalize on lower yields

Our most striking FX call for next year is that 2024 will be the year that the dollar finally turns lower. In our view, the best-performing currencies will be those which are most undervalued – step forward the Australian dollar and the Norwegian krone. And do not expect European currencies to lead the pack. The Dollar to turn lower As we discussed in our 2024 FX Outlook, we think the dollar should be due a cyclical downturn next year. Barring huge and unexpected risk premia emerging in the currency space, the dominant trend should be US growth converging on the weak levels seen in Europe and Asia, the Federal Reserve embarking on an easing cycle, and the dollar falling 5-10%. That view really does hinge on the Fed being able to cut rates and a clean bullish steepening trend playing out in the US yield curve. Typically this coming stage of the economic cycle should see commodity currencies outperform – which fortunately is also one of our calls (see next section). The main threats to our dollar view are enduring US economic strength or another identity crisis in the eurozone – recall EUR/USD failed to rally in 2001, despite the… Read More »Three calls for FX markets

The American dollar is fighting hard for the trend. For the last three trading sessions, the dollar index has been crossing up and down the 200-day moving average every day. All in all, the flirting with this level has been going on for more than three weeks, during which neither bulls nor bears were able to form a stable trend. Right now, there are about equal chances of a trend forming in one direction or the other, so it is worth watching closely to see which trend crystallises. The dollar bumped around in October and declined sharply in November, with only some stabilisation late last month. The recent settlement, from this point of view, looks like an attempt to stand still and gather strength before a new downward impulse. The first signal to switch to a bearish bias could be a sharp downward impulse under the 200-day average at 103.3 versus the current 103.6. The final confirmation will come in the form of an update of the November lows at 102.37. But the situation is far from desperate for the bulls as well. The dollar showed a convincing close last month, managing to rebound sharply to close the month above… Read More »The Dollar is struggling to trend

Gold price is licking its wounds near $2,020 amid a broad retreat in the US Dollar. Gold price uptick appears capped by positive US Treasury bond yields. Gold price awaits US ADP jobs data for a fresh boost, as technical stay supportive. Gold price is making a minor recovery attempt near $2,020 early Wednesday, replicating the move seen in Tuesday’s Asian trading. Risk sentiment appears to be in a tepid spot, underpinning the Gold price alongside a pause in the US Dollar upswing. Gold price looks to US ADP jobs report The US Dollar has stalled its two back-to-back days of recovery even though markets have turned cautious after Moody’s Investors Service downgraded its outlook on China’s government credit ratings to negative from stable. The rating agency, however, retained China’s “A1” long-term rating on the country’s sovereign bonds. Also, uncertainty surrounding the US Federal Reserve (Fed) interest rate outlook tempers investors’ sentiment, especially after a mixed set of US economic data released on Tuesday. The latest data from the Institute for Supply Management  (ISM) showed that the Services PMI registered 52.7 in November, firming up from October’s reading of 51.8. However, US JOLTS Job Openings slid to more than a 2-1/2-year low of … Read More »Gold Price Forecast: XAU/USD rebound could extend on weak US ADP jobs data