GOLD: Gold Down for Week, Awaits FED

Bond futures took the overnight lead and rallied strongly in the morning session, but failed to hold above a key technical, falling back in the afternoon.  TYZ5 is up +0.05 at 115-23+, after a high of 115-29+ earlier, just above the 20-day EMA of 115-28+.

Cash has been strong also with yields 1-2bps lower across the curve.  

• The 2-Yr fell -1.6bps to 3.561%
• The 5-Yr is down -1.7bps at 3.68%
• The 10-Yr is lower by -1.6bps at 4.072%
• The 30-Yr is down -1bps at 4.657%.

The bond market has been starved of data but will get some non-government led releases tonight in the ADP Employment Change (consensus 30k; prior -32k) S&P Global US Services PMI (forecast 55.2; prior 55.2) and ISM Services Index (forecast 50.8; prior 50.0).  

For issuance, the focus tonight remains on bill issuance with a US$95bn 6-week bill auction ahead of the US Treasury Quarterly Funding announcement. 

Gold is tracking higher in latest dealings, last near $3970, up around 1% from end Tuesday levels. Focus from a technical standpoint, the retracement since Oct 20 has allowed an overbought trend condition to unwind. The 20-day EMA has been breached, signalling scope for a test of the 50-day EMA, at $3864.7. Clearance of this EMA would strengthen a short-term bear theme. Initial resistance is at $4161.4, the Oct 22 high.

• Gold support is likely emerging from the risk off tone in markets, although sentiment has stabilized as the session has progressed. US equity futures and bitcoin are comfortably up from earlier lows.
• The USD is also off earlier highs, the BBDXY last near 1225.6, after getting to 1226.35 earlier. This has also likely lent some support to gold as well.
• To the extent the market is still maintaining core long gold positions, this may limit the extent of gold upside, particularly if we see broader USD gains. The recent move lower in gold has coincided with some dollar stability, see the chart below. Note the BBDXY index is inverted on the chart. 

Fig 1: Gold & USD BBDXY Index (Inverted) Trends 

Source: Bloomberg Finance L.P./MNI 

JGB futures are stronger, +15 compared to settlement levels. 

• Japanese bond futures trimmed earlier gains after a key measure of demand at today’s 10-year auction fell to its lowest since May, though they remain slightly higher amid a global bond rally.
• Demand at Japan’s 10-year government bond auction was subdued, as investors weighed the risk of a near-term BOJ rate hike despite the central bank’s cautious stance, while fiscal concerns also dampened sentiment. The average bid-to-cover ratio declined to 2.9734x from 3.3356x at the previous auction in October. Moreover, the low price failed to meet expectations at 100.34, according to the Bloomberg dealer poll. However, the tail shortened to 0.13 from 0.19.
• Cash JGBs are 1bp richer to 1bp cheaper, with a steepening bias. The benchmark 10-year yield is 0.2bp lower at 1.670% versus the cycle high of 1.705%.
• Swap rates are flat to 1bp lower.
• Tomorrow, the local calendar will see Cash Earnings, S&P Global Composite & Services PMIs and Tokyo Avg Office Vacancies data.

Source: Bloomberg Finance LP