GOLD, XAU, MARKET SENTIMENT, RATES, US DOLLAR, FED, INFLATION – TALKING POINTS
Gold Prices are slightly higher after a modest overnight recovery amid equity volatility
The outlook for bullion prices faces mounting pressures, including the Fed and US Dollar
1,900 level may prove key to direction, with a break possibly sparking a deeper selloff
Gold prices rose above the 1,900 level overnight, but that hasn’t inspired much confidence in the yellow metal following a sharp drop earlier this week. The Fed’s rate hike path has firmed up in recent weeks, pushing rates higher to bullion’s expense. The market has responded in a risk-off fashion, pushing equity prices lower. The fact that gold hasn’t responded to the risk-off backdrop reflects the worsening backdrop for prices.

Instead, investors have flocked to the US Dollar, pushing the DXY index to its highest level since March 2020 and within 1% of the 2016 highs. At the same time, market-based inflation expectations have cooled. Both of those are headwinds for gold, compounding gold’s negative outlook further. The US 1-year breakeven rate – a proxy for where the market sees inflation one year out – is trading near its lowest level since February at just above 5%. That gauge was over 6% just a month ago when gold was trading at 1,958.

The fact that gold hasn’t rebounded despite a major pullback in US equity prices and broader risk-off flows poses a big concern moving forward. A drop in real yields, usually a tailwind, didn’t provide enough juice for more than today’s very modest bounce. That said, gold doesn’t appear to be an appealing asset to own in current conditions and traders appear to be staying away for good cause. The Fed policy decision next week is also unlikely to change the outlook, given that the announcement will likely confirm the hawkish pivot seen over the past several weeks.

GOLD TECHNICAL FORECAST
Gold is holding above the 1,900 level after prices briefly dipped under the psychologically important level following a big drop earlier this week. If bears manage a clean break below that level, it would likely open the door for prices to continue sliding. The 100-day Simple Moving Average (SMA) would quickly shift into focus if that occurred, with a deeper drop looking at the 200-day SMA near 1,833.
— Written by Thomas Westwater, Analyst for DailyFX.com

AUSTRALIAN DOLLAR, AUD/USD, GOVERNMENT BOND YIELDS, US DOLLAR, YUAN, PMIS – TALKING POINTS The Australian Dollar fell into APAC trading after US Treasury yields surged Australian PMI figures show the Aussie economy on a firm recovery track AUD/USD trading near its 50-day SMA as MACD nears bearish crossover FRIDAY’S ASIA-PACIFIC OUTLOOK The risk-sensitive Australian Dollar may close out the week on a low note after dropping sharply versus the US Dollar overnight. The move was driven by a surge in Treasury yields, more so along the short-end of the curve, boosting the Greenback’s appeal to investors. The 5-year US yield briefly rose above 3% for the first time since November 2018. The Aussie Dollar may move lower into the weekend if traders continue to ditch US government bonds. Gold prices were another victim of Treasury rates, with the move in nominal yields lagging against its inflation-indexed counterparts. That pushed breakeven rates higher but it wasn’t enough to take the focus away from the move in real yields. Silver prices fell more than 2%, while gold prices moved nearly 0.5% lower. The Treasury auction for 5-year TIPS saw strong demand despite the Fed continuing to ratchet up its hawkish rhetoric. Australia’s manufacturing sector activity rose in April to 57.9 from 57.7, according to a purchasing managers’ index (PMI) report from S&P Global. The services sector rose to 56.6 from 55.6 for the same period. A quarterly production report from OZ Minerals will cross the wires later today, which will shed some light on the state of Australia’s mining industry. Iron ore prices are slightly lower this week, although they remain near 2022 highs at 153 per metric ton. The lockdown in Tangshan, China, is likely contributing to some of that weakness this week. The Chinese Yuan dropped again versus the US Dollar, extending its sharp slide that began earlier this week. The costs of hedging against further Yuan declines surged to its highest level in over a year as implied volatility surged. The Japanese Yen resumed its fall against the USD as well, with USD/JPY rising nearly 0.5% into APAC trading. Japan’s March CPI print will cross the wires at 23:30 GMT. Analysts expect to see a core y/y figure of 0.8%, according to a Bloomberg survey. A higher-than-expected print would complicate the Bank of Japan’s efforts to support ultra-loose monetary policy. Japan will see Jibun Bank PMI figures drop later today. AUD/USD TECHNICAL OUTLOOK AUD/USD is trading just above its 50-day Simple Moving Average (SMA), which is currently aligning with the 61.8% Fibonacci retracement level. That may provide a degree of confluent support, but a drop lower would threaten the high-profile 200-day SMA. The MACD oscillator is nearing a bearish cross below its center line, which may bolster the case for further losses. A rebound would see bulls set their sights on the 38.2% Fib level. — Written by Thomas Westwater, Analyst for DailyFX.com

US DOLLAR TALKING POINTS: US rates continue to rally and we’re nearing inversion of the 10 and 30 year Treasury, which hasn’t happened since 2006. The US Dollar has surged up to fresh yearly highs, with another boost after the ECB rate decision last Thursday. But, notably, EUR/USD has so far held the low from that meeting and the pair is in a major zone of long-term support. This can keep the door open for pullback themes in the USD while the longer-term look remains decisively bullish. The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section. — Written by James Stanley, Senior Strategist for DailyFX.com

AUSTRALIAN DOLLAR, AUD/USD, MARKET SENTIMENT, YIELDS – TALKING POINTS The Australian Dollar gained overnight versus the US Dollar as risk-on flows increased Asian stocks may extend rally after US stocks pace higher alongside Treasury yields AUD/USD looks primed to test the October 2021 high after a bullish SMA crossover WEDNESDAY’S ASIA-PACIFIC OUTLOOK Asia-Pacific markets look set for another positive day of trading after US stocks pushed higher, and AUD/USD set a fresh 2022 high. Treasury yields advanced for a second day as rate traders moved to price in a growingly hawkish shift in Federal Reserve rate hike bets. Markets are now anticipating a 50 basis point hike at the FOMC’s May meeting. Federal Reserve Governor Loretta Mester was the latest official to signal a more aggressive monetary policy outlook. The 2s10s Treasury curve rose back above 22 basis points overnight, which may have helped ease recession fears. Hong Kong’s Hang Seng Index (HSI) jumped over 3% on Tuesday, although the index remains nearly 5% below its monthly high. The positive performance comes despite China’s hesitancy to provide more monetary support this week by holding loan prime rates steady. However, analysts still expect to see several easing moves from the People’s Bank of China in the coming months. Traits of Successful TradersTraits of Successful Traders RECOMMENDED BY THOMAS WESTWATER Traits of Successful Traders Get My Guide Australia’s 10-year government bond yield fell overnight but not before hitting the highest level since June 2018. The Australian Dollar is likely to continue benefiting from rising yields, as it could push the Reserve Bank of Australia (RBA) to firm up its outlook. That would benefit the Australian Dollar, adding to the currency’s tailwinds, which include rising commodity prices and the risk-on market shift. New Zealand’s Prime Minister Jacinda Ardern said this morning that the Omicron outbreak in Auckland has peaked. Ms. Ardern also announced the rollback of several Covid restrictions, including outdoor gathering limits. NZD/USD rose over 1% to its highest level since November 23, 2021. Today’s economic calendar is light, but Thailand’s trade balance (Feb) and Japan’s coincident index are scheduled to cross the wires. Meanwhile, the situation in Ukraine remains tense with no end in sight. President Biden will visit Poland on Friday as the US reportedly readies a new round of Russian sanctions. AUD/USD TECHNICAL FORECAST AUD/USD is pushing into fresh 2022 highs this morning. The 0.7500 level may provide some resistance, but prices may climb to test the October 2021 high at 0.7556 if the current momentum holds. The MACD oscillator is strengthening and the 20-day Simple Moving Average (SMA) crossed above its 200-day SMA earlier this week, both bullish signs. Alternatively, a pullback to the 78.6% Fibonacci retracement level may be on the cards if bulls let off the gas. — Written by Thomas Westwater, Analyst for DailyFX.com

NASDAQ 100 OUTLOOK: U.S. stocks sink at the start of the week amid risk-off mood on elevated geopolitical tensions stemming from the ongoing war in Ukraine The Nasdaq 100 breaches support and plummets 3.75% to 13,319, increasing the likelihood of a retest of the 2022 low Deteriorating investor sentiment on stagflation fears may prevent a meaningful recovery in equities in the near term —Written by Diego Colman, Contributor

Global market sentiment was smashed this past week as Russia’s attack on Ukraine stretched beyond the first week. European markets were left particularly vulnerable. It was the worst week for Germany’s DAX 40 index since March 2020, falling over 10%. This is as the United Kingdom’s FTSE 100 index sank 7.6%, the most in two years. On Wall Street things were also grim. Futures tracking the Nasdaq 100, S&P 500 and Dow Jones fell 2.45%, 1.30% and 1.33%. The VIX Volatility Index, also known as the market’s preferred ‘fear gauge’, closed at a new weekly high, the most since January 2021. Tensions are making life difficult for the Federal Reserve, amplified by this past week’s non-farm payrolls report. Strong US labor market data, as the nation added more jobs than expected and unemployment declined further, continues to underscore tight conditions. Front-end government bond yields remained elevated as longer-term maturities faded. The 10-year and 2-year yield curve is quickly dropping off a cliff which may hint at rising risks of a recession down the road. Taking a look at currencies, it was the worst week for EUR/USD (-2.97%) since March 2020. EUR/CHF sank 3.89% in the worst performance since the SNB scrapped the Franc’s peg to the Euro in early 2015. The haven-oriented US Dollar and similarly behaving Japanese Yen outperformed. EUR/JPY tumbled 3.64%, the most since May 2011. Gold and crude oil prices are also on the rise. The former gained 4.2%, the most since July 2020. This is as WTI soared 25%, the most since May 2020. The inflationary shock of tensions in Europe is thus placing the Federal Reserve in a tricky situation. All eyes are on US CPI next week, where headline growth is expected at 7.9% y/y for February, up from 7.5% prior. All eyes will also be on the European Central Bank for its March monetary policy announcement. Odds of tightening have been dramatically pulled back. However, much like the Fed, the ECB is facing a rising inflationary environment, with very little room to ease. China will also release inflationary figures. What else is in store for markets this week? （From DailyFx）