OIL: Risk Premium Reduced On Hopes Of Diplomatic Solution To M. East Conflict

The range for Gold today in the Asia-Pac has been $4,113.63/oz - $4,140.37/oz, Asia is currently trading around $4131, +0.40%. The precious metal is picking up some momentum moving back toward the lows within its wider range. The move in Oil and US yields has been building pressure on the longs and yesterday we saw some capitulation. With China’s national week approaching this could have further added to the selling pressure. Central banks though continue to acquire gold, China chief among them. Without all this institutional demand how much lower would Gold be ? As Gold approaches the support back toward $3900-$4000/oz I suspect that buying would still be around. Any sustained break below that support though and we could see another wave of retail/leveraged longs bailing.

• Oguz Erkan: “Gold dip today is a buying opportunity. As Ray Dalio explains, debt problem is always followed by devaluation of the currency. The US can’t pay its debt back, it can only inflate it away as it’s always been. This makes gold a secular long.” https://x.com/oguzerkan/status/2104682263149760684?s=20
• The Kobeissi Letter on X: “Today's drop in gold prices was highly unusual. Gold prices fell -3.4% today, marking one of the rarest single-day declines of the last two decades. Since 2006, gold has recorded an average daily change of +0.05%, with a standard deviation of 1.19%. Today’s selloff registered a Z-score of -2.90, placing it deep in the left tail of the distribution. Statistically, a daily decline this extreme occurs just ~0.2% of the time, or roughly once every 2 years assuming a normal distribution. The surge in yields is creating an extraordinary disruption across the precious metals market.”
• Katusa Research on X: “A 3% gold selloff is rare. A nearly 4% gold selloff is the kind of day you study—not ignore.” See Fig.1 below.
• The XAU Average True Range(ATR) for the last 10 Trading days: $72.00/oz

Fig 1 : A 3% Gold Selloff Is Rare

Source: MNI - Market News/@KatusaResearch

Fig 2 : Gold Daily Chart

Source: MNI - Market News/Bloomberg

The RBA is unanimously expected to hike rates 25bp to 4.6% today. 

• RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 96% for today to 169% by December 2026 and 268% by June 2027.
• At current levels, the market is more confident of a hike this month than it was ahead of each of the three 25bp increases delivered so far this year.

Figure 1: RBA-Dated OIS - Current

Source: Bloomberg Finance LP / MNI

The BBDXY has had a range today of 1215.95 - 1216.93 in the Asia-Pac session; it is currently trading around 1216. US yields remain under pressure keeping the US Dollar well supported for now. Though it was unable to extend higher overnight as momentum slowed even with such a negative risk backdrop. This break higher technically looks potentially significant to me in the short-term and completely negates the pressure that had been building on the USD. I suspect we could now see the dips in the US Dollar become supported as the market potentially now turns its focus toward a test of the more pivotal 1230 area at some point down the line. Initial support is now back toward 1209-1212 and then the 1200-1205 area looking for the break to consolidate and then build momentum higher at some point.  

• EUR/USD -  Asian range 1.1362-1.1374, Asia is currently trading 1.1362. The pair’s momentum has slowed but the price action remains pretty telling. This break in the USD looks potentially significant to me in the short-term and should add to the Euro’s headwinds. I have been skewed in favour of fading this rally in the EUR, the price action has now turned decidedly bearish and I suspect rallies are now likely to continue to be sold into. On the day the first resistance is back toward 1.1390-1.1425 through here the 1.1500 area comes back into play. Looking for a test of the 1.1300-1.1350 area at some point, a sustained break below there and we could target a move back toward 1.0900-1.1000.     
• GBP/USD - Asian range 1.3239-1.3260, Asia is currently dealing around 1.3240. The pair continues to trade heavy after breaking back below the 1.3450 area. I suspect rallies could now be faded as momentum turns back toward the lower end of the 1.3150-1.3650 range. First resistance is back toward 1.3285-1.3315 which held overnight and then the 1.3400-1.3450 area comes back into play.
• Data: Spain September CPI, UK August Mortgage Approvals, Eurozone September Consumer Confidence, US September Conference Board Consumer Confidence, US August JOLTS Job Openings

Fig 1: EUR/USD Spot Weekly Chart

Source: MNI - Market News/Bloomberg Finance L.P