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Traders watching the $1280 area on gold

Four key markets in focus today: Spot gold, AUD/USD, ISD/INR and Cochlear.

Gold
Source: Bloomberg

Spot gold

Traders will be watching the $1280 area on gold as this represents the 61.8% retracement of the May to July rally. Last week good bids (or buying) came into the market on the two times the commodity fell here, so it will be interesting to see if support gives way this time around. A look on the two-hour chart highlights the recent downtrend drawn the July high of $1345 and thus a negative bias is favoured. Comments overnight from Federal Reserve member Jeffrey Lacker that ‘the markets may be underestimating Fed tightening pace’ may be hurting sentiment. At midnight tonight we get the July services ISM in the US and with the market expecting a slight uptick in the pace of expansion (the index is expected to print 56.5); a number above expectations could push gold to this key support.

AUD/USD

AUD/USD has seen good buying from below the 93 area, as traders looked to pair back on last week’s defensive stance.  It promises to be a busy day for AUD-focused rates and currency traders, with the June trade balance at 11:30 and RBA central bank meeting at 14:30 AEST. The trade balance is expected to show a widening of the deficit (A$2 billion), while I see little reason for the RBA to alter its language from the prior statement. The major drivers this week remain Thursday’s Australian jobs report and Friday’s Statement on Monetary Policy.

USD/INR

The Indian Central bank meets at 15:30 AEST today and economists expect no change to its key interest rates. Naturally the tone of the accompanying statement will be key, and it’s worth pointing out that the markets are now pricing in 50 basis points of cuts over the coming twelve months. USD/INR has rallied around 4% since Narendra Modi and the BJP party won its landslide victory in May, with traders reacting to a loose budget and broad USD strength. The poor monsoon is expected to push up food inflation and as a result the Indian central bank should keep rates on hold, and recall it is rather optimistically looking for inflation to fall to 6% (inflation is currently at 7.3%).

Cochlear (COH)

We get earnings today from Downer EDI and Transurban; however earnings from COH will be very interesting. COH have enjoyed a strong run from the February lows and are now trading a premium to all brokers’ price targets that cover the stock. We also need to remember that while the brokers see little reason to hold the stock it is therefore very unloved and short interest in the name is high. The company has pre-guided the market to NPAT of A$107 to A$117 million, although there is naturally downside risk to this figure. Investors will be keen to look out for signs around market share in the US and the take up of new products. The result should be announced around the market open, with the analysts briefing in the afternoon.

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