CWG Markets Market Update May 6, 2024 (Monday):
Market Summary:
Last Friday (May 3), due to the U.S.'s April job growth slowing down more than expected, and the cooling of year-over-year wage growth, the market increased its bets that the Federal Reserve would cut interest rates twice this year. The U.S. dollar index briefly fell below the 105 level but subsequently recaptured most of its lost ground, closing down 0.32% at 105.05. The yield on the 10-year U.S. Treasury notes fell, closing at 4.518%. The yield on the 2-year Treasury notes, which is most sensitive to Federal Reserve policy rates, closed at 4.829%.
Spot gold weakened slightly, currently trading around $2298.76 per ounce. Despite weaker-than-expected U.S. employment data, gold still dropped to a one-month low last Friday, continuing the correctional trend after last month's rally due to profit-taking by investors and the easing of geopolitical risks.
Although OPEC+ may continue its production cuts, the easing of demand uncertainties and Middle Eastern tensions reduced supply risks, leading to the largest weekly drop in crude oil prices in three months. WTI crude continued its declining trend last Friday (May 3), falling over 1% and closing down 1.32% at $77.76 a barrel; Brent crude closed down 1.10% at $82.67 a barrel on the same day.
Data and News Released the Day Before:
On May 3, the U.S. dollar weakened across the board except against the Canadian dollar, with the U.S. dollar index slightly weakening in overnight trading. It quickly fell earlier in the day, then the decline significantly narrowed, and it dropped again at the closing. The dollar index, which measures the U.S. dollar against six major currencies, fell 0.26% to close at 105.030 in the FX market.
The U.S. Department of Labor data released in the morning of May 3 showed that the U.S. added 175,000 non-farm jobs in April, significantly below the market expectation of 243,000 and the upwardly revised 315,000 in March. The U.S. unemployment rate rose to 3.9% in April from 3.8% in March, higher than the market expectation of 3.8%.
The Federal Reserve has kept the benchmark interest rate unchanged at 5.25% to 5.50% range for the sixth consecutive meeting. The FOMC statement indicated that the Fed will reduce its Treasury holdings from $60 billion per month to $25 billion per month starting in June. Additionally, there has been no further progress towards the 2% inflation target in recent months, reiterating the need for greater confidence in inflation before considering a rate cut.
Fed Chair Powell mentioned that although inflation has significantly slowed down over the past year, it remains above the 2% target; there's a lack of further progress in battling inflation, and U.S. inflation data so far in 2024 has been consistently higher than expected; the timing of a rate cut depends on the data, with the FOMC deciding at each meeting, but the next move is unlikely to be a rate hike; if the labor market unexpectedly weakens, it would ensure the FOMC considers a rate cut.
Fed Governor Bowman stated that it's unclear whether further supply-side improvements will continue to reduce inflation; inflation is expected to remain high for a while; data showed that the reduction in the inflation rate by the end of 2023 is temporary; the Fed’s monetary policy stance appears to be tight; it will continue to closely monitor data to assess the appropriate monetary policy.
ECB Board Member Hernandez de Cos expressed growing confidence in reaching the 2% inflation trajectory as soon as possible; Eurozone inflation is expected to fluctuate for the remainder of 2024, then drop to the 2% target by mid-2025; the disinflation process is progressing but not complete; the recent cycle's transmission is stronger than in the past; risks to the inflation outlook are currently balanced.
ECB Chief Economist Lane stated that decisions will continue to be data-driven; there's no preset path for interest rates; given the lagged effect of transmission, the ECB's past rate hikes are still having a tightening effect; if needed, policy rates will remain restrictive.
Minutes of the Bank of Japan's meeting indicated that policy adjustments will be made based on economic and price conditions; many members believe long-term interest rates should essentially be determined by the market; members said financial conditions are expected to remain loose; some members emphasized the importance of conveying that the central bank doesn't plan on rapid rate hikes; several BoJ members noted that the value of the yen significantly deviates from purchasing power parity.
Japan's Vice Minister of Finance, Kanda Makoto, stated that excessive foreign exchange volatility significantly impacting the Japanese economy cannot be overlooked, and the market will be appropriately addressed around the clock as needed. Japan will disclose foreign exchange intervention data at the end of the month.
Bank of Japan data indicates that Japanese authorities might have spent between 3.26 to 3.66 trillion yen intervening in the yen exchange rate. The Bank of Japan's forecast for Tuesday's monetary market conditions showed a net inflow of 4.36 trillion yen, while currency market brokers' estimates, excluding intervention funds, ranged from 700 billion to 1.1 trillion yen. Foreign exchange transactions require two business days for settlement, and the Japanese market was closed last Friday and this Monday due to public holidays.
On Monday (May 6) during the Asian session, spot gold slightly weakened, currently trading around $2293.76 per ounce. Despite weaker-than-expected U.S. employment data, gold still dropped to a one-month low last Friday, continuing the correctional trend after last month's rally due to profit-taking by investors and the easing of geopolitical risks.
A survey showed that bullish sentiment towards gold has cooled down, with the majority of analysts believing that gold prices are likely to consolidate with fluctuations in the coming week, though most retail investors still tend to be bullish on gold's future.
Gold prices rose to $2320.78 after the release of the U.S. non-farm employment report, showing an addition of 175,000 jobs last month, lower than economists' forecast of 243,000, but quickly gave up its gains.
Tai Wong, an independent metals trader in New York, stated: "Gold surged immediately after a balanced and favorable employment report was released, attracting a significant amount of profit-taking, indicating that bulls are becoming more cautious after experiencing a significant rebound in April. The response to Powell's friendly remarks on Wednesday was also fairly moderate."
Although employment data reinforced expectations that the Federal Reserve will start cutting rates this year, which should support non-yielding gold, it instead prompted investors to shift towards higher-risk assets.
Driven by the outbreak of the Middle Eastern situation and strong central bank buying, gold prices reached a new all-time high of $2431.41 in April. Since then, safe-haven gold has fallen by 5.7%, or approximately $140.
Last week, 15 Wall Street analysts participated in the Kitco News gold survey. After two weeks of downward consolidation, the majority believe gold prices will slide further in the near term. Only four experts (27%) expect gold prices to rise next week, while five analysts (33%) predict a drop. Six experts (40% of respondents)
think gold will consolidate.
Meanwhile, in Kitco's online public opinion poll, out of 217 votes cast, 102 retail traders (47%) expect gold prices to rise in the coming week. Another 61 respondents (28%) anticipate a decline, while 54 participants (25%) expect precious metals to trade sideways in the coming week.
Technical Analysis of the U.S. Dollar Index:
The U.S. dollar index faced resistance below 105.45 last Friday and found support above 104.50, indicating the U.S. dollar might maintain a downward trend after a short-term rise. If the U.S. dollar index faces resistance below 105.45 today, the target for future declines will be between 104.55-104.10. Today's short-term resistance is at 105.40--105.45, with significant resistance at 105.85--105.90. Today's short-term support is at 105.55--104.60, with significant support at 104.10--104.15.
EUR/USD Technical Analysis:
EUR/USD found support above 1.0720 last Friday and faced resistance below 1.0815, suggesting EUR/USD might maintain an upward trend after a short-term decline. If EUR/USD stabilizes above 1.0720 today, the target for future gains will be between 1.0815-1.0855. Today's short-term resistance is at 1.0810--1.0815, with significant resistance at 1.0850--1.0855. Today's short-term support is at 1.0720--1.0725, with significant support at 1.0680--1.0685.
Gold Technical Analysis:
Gold found support above 2277.00 last Friday and faced resistance below 2321.00, suggesting gold might maintain a downward trend after a short-term rise. If gold faces resistance below 2321.00 today, the target for future declines will be between 2277.00--2256.00. Today's short-term resistance is at 2320.00--2321.00, with significant resistance at 2341.00--2342.00. Today's short-term support is at 2277.00--2278.00, with significant support at 2256.00--2257.00.
Please note, if the strategy reaches the expected close target first on the day, conservative investors can forgo the day's trading plan. When executing this strategy, positions can be arranged 5-10 points ahead, but the stop-loss price should be executed without compromise.
When following this strategy and achieving a profit of 30 points or more, ensure to protect the breakeven point or take profits, never let a profitable trade turn into a loss.
Position standards: If the risk tolerance is below 20%, trading 0.1 lots per $2000 is possible; if the risk tolerance is between 20%-50%, trading 0.1 lots per $1000 is possible; if the risk tolerance is above 50%, trading 0.2-0.3 lots per $1000 is possible.
CWG Markets, as an FCA fully authorized and regulated trading service provider, the content and views contained in this document are for general information only and do not take into account your investment objectives, financial situation, and investment needs, any reference to historical price movements or price levels is based on our analysis and does not indicate or prove that such movements or levels may reoccur in the future. Some research reports predict/represent analysts' personal views and are not intended as investment advice. Broad users are advised to invest rationally and be aware of risks. Should you have any questions, please seek advice from independent advisors.
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