Safe haven assets came under renewed buying interest yesterday while riskier assets like equities underperformed, as investors sought to insulate their portfolios ahead of three major risk events tomorrow. The UK General Election, the highly anticipated ECB policy decision and a testimony by former FBI Director James Comey all have the potential to rattle financial markets.
Markets will probably focus on how big of a majority Theresa May will manage to secure, if the ECB will drop aspects of its dovish forward guidance, and on whether Comey will confirm that Trump attempted to influence an FBI investigation. Without anything notable on the agenda today, we think that investors could keep their gaze locked on these major events. As such, this risk-averse mood could linger today as well, and we may experience similar market moves.
Gold surged yesterday, clearing the downside resistance line taken from the peak of the 6th of July 2016. The price broke two resistance (now turned into support) barriers in a row, to stop near 1295 (R1). The short-term path appears positive, but given that our short-term momentum studies show signs of topping, we see the case for a corrective setback before the bulls decide to take the reins again. Switching to the daily chart, we see that the metal is getting very close to the important psychological zone of 1300 (R2). Therefore, we prefer to wait and see whether the bulls will appear strong enough to overcome that key obstacle, especially with tomorrow’s risk events looming.
Australia’s GDP beats consensus, AUD gains further
Overnight, the Australian dollar extended its latest gains, following the release of the nation’s GDP data for Q1. Even though GDP growth slowed notably from the previous quarter, the print was a touch better than expected. Nonetheless, we doubt this will be any surprise for the RBA, which in its policy statement yesterday noted that it expected GDP growth to have slowed in Q1, and that it views this slowdown as transitory. With regards to the Bank, we maintain our view that policymakers will probably remain on hold for the foreseeable future.
AUD/USD managed to overcome the downside resistance line taken from the peak of the 17th of April, and hit the resistance (now support) zone of 0.7515 (S1) ahead of the release of Australia’s GDP data. As soon as the data were out, the rate rallied, broke above 0.7515 (S1), and now looks to be headed towards our next resistance hurdle of 0.7550 (R1). In our view, the break above the aforementioned downside line has turned the short-term outlook positive and as such, we see the prospect for the pair to continue trading higher for a while. A decisive break above 0.7550 (R1) is likely to set the stage for more bullish extensions, perhaps towards the 0.7600 (R2) territory.
Today’s highlights:
The European morning is very quiet in terms of data releases, as we mostly get second-tier economic indicators. In Germany, factory orders for April are expected to have fallen, a turnaround from previously.
From Sweden, we get industrial production for April and the forecast is for a modest acceleration.
In Eurozone, the final GDP print for Q1 is anticipated to confirm the 2nd estimate and as such, any reaction in EUR may remain limited.
From Canada we get building permits for April, although no forecast is available.
XAU/USD
Support: 1288 (S1), 1282 (S2), 1278 (S3)
Resistance: 1295 (R1), 1300 (R2), 1308 (R3)
AUD/USD
Support: 0.7515 (S1), 0.7500 (S2), 0.7455 (S3)
Resistance: 0.7550 (R1), 0.7600 (R2), 0.7625 (R3)
