Senior Trader Daily Update 06 July 2017

Good morning everyone.
 
As noted in Tuesdays commentary, geopolitical developments can change market sentiment rapidly and with the newswires broadcasting the following headlines during pre-market trading on Wednesday morning in Asia -
 
*U.S. WILL BRING N.KOREA'S ACTION BEFORE UN SECURITY COUNCIL
*U.S. SAYS NORTH KOREA TESTED AN ICBM; REPRESENTS ESCALATION
*N. KOREA KIM: U.S. WON'T LIKE `GIFT' ON INDEPENDENCE DAY: KCNA
*N.KOREA KIM: WON'T NEGOTIATE UNLESS U.S. SCRAPS THREATS: YONHAP
*N. KOREA KIM SAYS WILL SEND `GIFT PACKAGE' TO U.S. FREQUENTLY
*N. KOREA AIMS TO DEVELOP ICBM CAPABLE OF HITTING U.S. IN 2017
- gold, having shown next-to-no reaction to the testing of a North Korean “firecracker” on Tuesday, this time around managed to pick up a modest safe-haven bid early yesterday as a result of the lobbing of verbal salvos between the protagonists, North Korea and the US.
 
The “bid” tone underpinned the precious metals only until the arrival of European investors, who proceeded to erase all of Asia’s gains and then some, with follow-through selling seen into early US trade - a rallying Greenback weighing upon values.
 
A late bounce out of the day’s lows was sparked by the release of the FOMC Minutes from the most recent monetary policy meeting. What the minutes revealed were continuing support for gradual interest rate hikes but division amongst Fed officials surrounding the commencement of the normalisation of the US central bank’s balance sheet. The minutes also highlighted the focus of Fed officials on the necessity to underpin financial stability by pursuing a gradual tightening of the monetary spigots - “Some participants suggested that increased risk tolerance among investors might be contributing to elevated asset prices more broadly; a few participants expressed concern that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.”
 
Prices remained firm at the open this morning on the back of Waffle House waitress-turned-US-Ambassador to the UN Nikki Hayley, dutifully ramping up the rhetoric as a precursor to a US military intervention in North Korea. China and the Russian Federation having ruled out military action. The newswires carried the following comments from Ambassador Hayley:
 
*HALEY: PREPARED TO USE THE FULL RANGE OF ITS CAPABILITIES TO DETER NORTH KOREA, INCLUDING MILITARY FORCE "IF WE MUST"
*HALEY: U.S. WON'T HAVE PATIENCE FOR WATERED DOWN UN RESOLUTION
*North Korea’s recent missile launch shows it "does not want to be part of a peaceful world" according to the US Ambassador to the UN.
*HALEY SAYS COUNTRIES ALLOWING TRADE WITH NORTH KOREA IN VIOLATION OF U.N. SANCTIONS WILL NOT BE ALLOWED TO CONTINUE TRADE WITH U.S.
*HAYLEY: "today is a dark day - it is a dark day because yesterday's actions by North Korea made the world a more dangerous place."
 
As we noted on Tuesday, ”Some mean-reversion on profit taking or a short squeeze may unfold and provide a bounce away from the support line in the short term” and the AUD 1591.50 (March 21st low support line) proved its mettle as the market held that level on Monday and Tuesday and continued moving higher, removing for the moment the risk of the AUD 1578.00 (March 15th low) being tested. Expect some profit taking / speculative short selling at the previous support line at AUD 1621.50, which is now likely to act as initial resistance from present levels.
 
XAU/USD sees technical resistance at the 200 Day moving average (USD 1231.50) and at the top of the (downtrend) channel (USD 1239.00). The USD 1214 (May 9th low) has held firm taking away the risk of a test of the USD 1195.00 (March 10th low) to 1197.50 (mid-March lows) area, at this point in time.
 
Geopolitical developments notwithstanding, economic data releases from the US (both today and tomorrow) which include; Factory Orders (May),Durable Goods (May), ADP Employment, Initial Weekly Jobless Claims, Markit US Services PMI and finally, the closely watched US Bureau of Labor Statistics Non-Farm Payrolls and Employment data release for June (+177K & 4.3% expected), could all have their own unique impact on proceedings as the week draws to a close.
 
Good luck.
 
Regards,
Andre