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Expect Short-Term Dollar Bounce, Gold Drop and Yield Rise Ahead

Please find attached our short-term projections (3-5 days) based on technical analysis, suggesting a temporary bounce in the US dollar, a retreat in gold and a brief pull back in bonds (yields up). The fundamental argument for such a development would be none other than a favorable non-farm payrolls report from the US, which would be instrumental in significantly reducing odds for a Q1 Fed cut. Friday’s report may cause little change in next week’s FOMC statement in the event that the unemployment rate remains below 4.6% and payrolls bounce back above the 110-20K territory, in which case would support the charts analysis on gold, bonds and the dollar seen below. Strong average hourly earning (no less than 0.3%) could also help boost the US currency as it would partially vindicate the Fed’s inflation worry and optimistic view of the economy.

Gold has broken below a 6-week triangle support at $638.11 per ounce to $630.50 per ounce, and is now nearing the $625.81 support -- 23.6% Fibonacci retracement of the move from the Oct 4th low to the Dec 1st high. A breach below it opens the way for further downside towards the $612.86 target -- 38.2% retracement of the said move. The gold rally is expected to remain well and alive as long it holds above the channel support of $602.00, after which is expected a resumption of the bull. Nonetheless, the temporary downside towards $615-$615 from the current $629.3 appears highly plausible on technical grounds.

Dec. US 10-yr Note (Price)
Also consistent with a temporary dollar bounce and a gold pullback, is the sell-off in bond prices (rising yields). With the dissipating MACD signaling a clear turn off the highs, we expect further slowdown to argue for a bearish convergence. This should call up interim support at 108.83 in price (4.56% yield), before resuming the sell-off towards the 108.41 (4.61% yield)--38% retracement of the rally from the Oct 23 low to the Dec 1st low.

Sterling contains the main technical ingredients for prolonging its 2 day sell-off as the trend indicators coupled with the oscillator measures continue signaling overbought levels along with slowing momentum. The pair should be expected to break the interim support of 1.9612 and test the subsequent target of 1.9550. In the event of a breakdown below 1.95, a deterioration of sentiment should trigger an assault of the Nov 17th trend line support around 1.9440-20, just below the 50% retracement of the said move at 1.9347.


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