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Asia Day Ahead: Gold hanging at resistance, AUD/USD back at key support

Major US indices concluded the first week of 2024 with its first weekly decline in ten weeks, as sentiments seek to moderate from extreme bullish levels.

Gold Source: Bloomberg

Market Recap

Major US indices concluded the first week of 2024 with its first weekly decline in ten weeks, as sentiments seek to moderate from extreme bullish levels, with eyes on the US job report to end last week. The initial impact of the stronger-than-expected labour report was to push back against the scale of rate cuts this year, but when viewed alongside the significant downside surprise in US services purchasing managers index (PMI), the strength in US labour conditions may see some downplaying.

The US Institute for Supply Management (ISM) services PMI for December registered its lowest level in seven months, underperforming broad consensus (50.6 versus 52.6 forecast). Notably, the services employment sub-index revealed its sharpest contraction since July 2020 (43.3 versus previous 50.7), which suggests that resilience in US labour market could be challenged ahead.

Overall, markets witnessed some indecision, with the US dollar ending the day where it started amid some volatility. The US two-year yields were unchanged, while the US 10-year yields managed to stay above 4% mark (at 4.05%) despite some paring of earlier gains. Major US indices were largely flat, with focus now turning to the US consumer price index (CPI) data on Thursday to validate market rate expectations ahead.

Gold prices were indecisive as well, with a spinning top candle formed on the daily chart. Prices continue to find resistance at the US$2,074 level last week, which has held prices down on at least four previous occasions. Any upward break of the US$2,074 will remain on the lookout to pave the way to retest its all-time high at the US$2,146 level. On the downside, immediate support may be found at the psychological US$2,000 level, followed by the US$1,950 level where a support confluence stands.

Spot Gold Source: IG charts

Asia Open

Asian stocks look set for a mixed open, with ASX +0.11%, NZX -0.43% and KOSPI +0.35% at the time of writing. Japan markets are off-trading for holiday today. Amid the quiet front on the economic calendar to start the week, overall sentiments will continue to revolve around the US job report, while the lead-up to the upcoming US inflation data this week may also drive a cautious tone in markets. Chinese equities remain lacklustre, with the Nasdaq Golden Dragon China Index down 1.8% last Friday.

More clues will have to be sought on market direction ahead, with US short-term yields and the US dollar giving up their post-employment gains and not offering much to digest into today’s session. One for the radar may be the Straits Times Index (STI), which has previously broken out of a descending wedge pattern back in December last year. Near-term, the 3,200 level will be key to watch, where its 200-day moving average (MA) stands. Overcoming this level may be crucial to pave the way to retest its 2 January high at the 3,260 level next.

Singapore Index Source: IG charts

On the watchlist: AUD/USD on watch ahead of Australia’s inflation data this week

Following a close to 10% rally since October last year, the AUD/USD has tracked the risk environment lower to start the new year but are facing a key retest of support ahead. Having overcome its Ichimoku cloud resistance on the weekly chart for the first time since July 2021, the pair is now attempting to defend crucial support at the 0.665 level, where the lower edge of the cloud zone stands.

Australia’s inflation data will be on watch this week, with expectations for further easing in pricing pressures to validate views of two rate cuts priced for 2024. Defending the 0.665 level may still keep the near-term upward bias intact for the AUD/USD, while on the other hand, any break below last Friday’s low could suggest sellers in greater control, potentially leaving the 0.652 level on watch next.

AUD/USD Mini Source: IG charts

Friday: DJIA +0.07%; S&P 500 +0.18%; Nasdaq +0.09%, DAX -0.14%, FTSE -0.43%

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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