Gold (June)
Yesterday’s close: Settled at 1322.8, down 10.2
Fundamentals: U.S Dollar strength has been a tremendous headwind for Gold and other commodities this week. Today’s ECB meeting will undoubtedly bring currency volatility, it is ECB President Mario Draghi’s press conference that will be most crucial. Additionally, due this morning are Durable Goods, weekly Jobless Claims and Trade Balance data. While May options expiration yesterday can bring some relief, we expect Gold to be mainly driven by the currency trade and for this reason, here is our excerpt from last night’s FX Rundown:
They are expected to leave policy unchanged and the statement is due at 6:45 am CT. ECB President Mario Draghi begins his press conference at 7:30 am CT and his comments will be the most crucial. The Euro capped off an abysmal stretch ahead of this meeting by closing below our major three-star support and at the lowest level since January 12th. Ironically, we mention this January 12th area because the day prior, the Minutes from the December ECB Meeting pointed to a change in message around the corner. Many, including us, believed this was the first step towards hiking by the end of 2018. At their March meeting, the ECB removed their pledge to increase stimulus if necessary. While the Euro has lost significant ground over the last week, we look to the market now pricing in a dovish rhetoric tomorrow. While recent business sentiment data and Manufacturing has been downright poor, inflation has had traction and we believe this has gotten lost in much of the noise; the liquidation of the massive net-long position in the Euro and short-covering in the Dollar. The U.S 10-year crossing the 3% threshold has strengthened the Dollar, a surprisingly hawkish or simply not dovish ECB could get the Bund and regional yields cooking. As we have said early in the week, the door is now open for a strong recovery in the Euro tomorrow.
Technicals: Gold is holding ground above first key support though it did trade to a low of 1320.2 yesterday. Today’s session high has remained contained by first resistance but a move above 1329.4 will help neutralize the immediate-term weakness and invite buyers back. A move out above 1334.5-1335 is bullish. Though we do not want to see a new low, major three-star support is below and brings a strong backstop.
Bias: Bullish/Neutral
Resistance: 1329.4**, 1334.5-1335**, 1345.7-1348.8**, 1356.7-1358.4**, 1367.8-1370***
Support: 1322.4-1325.4**, 1312.3-1316.6***
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