TREX Global:Bank of Japan’s resolution and “terrorist data” hit, be wary of bulls regaining their offensive

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In this trading day, the market will focus on the interest rate decision of the Bank of Japan, PPI in the United States in December, retail sales in the United States in December (commonly known as "terrorist data") and the monthly rate of industrial output in the United States in December. In addition, pay attention to the speeches of Fed officials.

Focus on Bank of Japan resolution

The Bank of Japan shocked the market last month by raising the policy ceiling on the 10-year yield from 0.25% to 0.5%. The yen soared by nearly 700 points, which weakened the U.S. dollar index sharply. At that time, it provided some upward momentum for gold prices. The price of gold rose from 1787 to around 1817 that day.

Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia (CBA), said the Bank of Japan's policy decision today could lead to wild swings in currency markets given speculation that the central bank may further change its policy stance. If the Bank of Japan adopts a dovish stance, USD/JPY could surge 2-5 yen. The pair could "fall sharply" if the market interprets any policy adjustment as a step towards normalization.

Follow U.S. economic data

The economic data of the United States in the evening has a certain influence on the Fed's future monetary policy expectations, so it also has a relatively large impact on gold prices.

At present, the market expects that the year-on-year growth rate of PPI in the United States in December will drop to 6.8%, the previous value is 7.4%, and the year-on-year growth rate of core PPI is expected to drop to 5.7%, and the previous value is 6.2%. , the previous value fell by 0.6% month-on-month. The market expects industrial output to decrease by 0.1% month-on-month in December, and the previous value decreased by 0.2%.

Relatively speaking, PPI data and retail sales data have a greater impact. The current market expectations are biased towards further supporting the Fed to slow down the pace of interest rate hikes, which is expected to provide new upward momentum for gold prices. Of course, we need to pay attention to the specific performance of the data.

The New York state's barometer of business activity fell to its lowest level since mid-2020 in January as orders fell sharply and job growth stalled, the Federal Reserve Bank of New York said on Tuesday.

The New York Fed's manufacturing index plunged to minus 32.9 in January from minus 11.2 in December, the lowest reading since mid-2020 and the fifth-worst reading in the survey's history. Economists polled by Reuters had forecast the index at -9.0.

A reading below zero indicates that manufacturing in New York is contracting. The survey showed a decline in new orders and shipments.

The survey also showed rising inventories, stagnant job growth and a shorter average workweek

Traders are currently pricing in a 90.6% chance of a 25 basis point rate hike in February and see rates peaking at 4.94% in June, while most Fed officials see rates staying above 5% through next year.

The U.S. dollar index has hovered at a seven-and-a-half-month low for the past three trading days, and is currently trading around 102.36. Although the downward momentum has weakened, further downward risk cannot be ruled out. The key support is around the May 30 low of 101.30. At the top, focus is on the resistance near the 10-day moving average of 103.03. If this position can be regained, it will increase the short-term bottoming risk of the dollar, which will increase the risk of a callback in gold prices.

TREX Global’s view:The fundamental situation is still slightly biased towards gold bulls, which will limit the room for a correction in gold prices, and the U.S. dollar index is also facing further downside risks, which is also expected to provide opportunities for further surges in gold prices after shock adjustments. In the short-term, focus on the support near the 1900 mark and the 10-day moving average at the bottom, and the resistance near the 1920 mark at the top.

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