AUD/USD, gold: Reversal roadblocks loom as prices near key levels

• AUD/USD and gold have struggled this week, giving back some of their recent gains
• The Australian dollar remains pressured by global growth concerns
• Gold looks heavy, perhaps reflecting geopolitical headline fatigue

AUD/USD and gold have struggled in November, giving back some of the gains achieved in late October. With both sitting near key levels, we look at the prospects for a bounce or extension of the pullback in the days ahead.

AUD/USD remains a sell on rallies play

Persistent global growth concerns, along with a watering down of the RBA’s hawkish bias following the decision to hike Australia’s cash rate to 4.35%, have undermined the AUD/USD recently, seeing the pair move back towards the centre of its trading range after failing again to break resistance above .6500.

From a technical perspective, AUD/USD is withing touching distance of the 50-day moving average, a level it respected on multiple occasions in October. That suggests near-term price action may determine whether the reversal will continue. Despite the less than impressive recent performance, RSI and MACD continue to trend higher, indicating potential for a bounce with momentum still pointing higher.

On the topside, resistance above .6500 has proven to be a tough nut to crack. The longer it continues to repel bounces, the more it will embolden bears to use this level to establish fresh short positions. Below the 50DMA, support is found at .6365 and around .6286. The latter, too, has proven to be difficult to break, pointing to the potential for the pair to remain rangebound.

From a fundamental perspective, sentiment towards the global economic outlook, especially China, needs to brighten to help improve the prospects for the AUD/USD. Lost in the headlines about the RBA rate decision earlier this week was a batch of weak China PMI surveys for October, suggesting the tepid recovery in activity may be already coming to an end. With that in mind, China’s CPI and PPI reports for October due later Thursday could be influential on the AUD/USD performance. Continued weakness will do nothing to lift the gloom towards this key pillar of the global growth story.

Combining the technical and fundamental picture, the AUD/USD remains a sell on rallies play even though dour sentiment is now well and truly priced in.

Gold suffering from headline fatigue

Gold is another asset that has suffered a decent reversal recently having failed to clear resistance above $2000, slinking back towards support around $1946. As discussed in a previous post, gold gave off the impression that it needed to go lower before it could contemplate a potential move back towards the record highs set earlier this year.

Having surged nearly $200 an ounce, mostly on the back of the escalating conflict between Israel and Hamas, you get the sense gold is now suffering a bit from headline fatigue. While no one disputes the seriousness of the situation, much like we’ve seen with the war in Ukraine, market sensitivity to geopolitics often wanes over time. And with no sign of escalation across the broader Middle East region, it may explain why gold is looking heavy on the charts.

$1946 looms as an important level in the near-term having acted as both resistance and support on multiple occasions since July. While that suggests traders may use it as a launch pad back towards $2000 and above, with MACD and RSI rolling over, momentum appears to be building on the downside. Below $1946, the next levels to watch are $1903 and $1885. Above, $1980 and $2005 are the initial hurdles to overcome for bulls.

Given the unconvincing price action, those considering longs may want to see the price test and hold support at $1946 before initiating positions. A clean break of this level may result in the reversal gaining speed beyond that already seen.

While the price action is looking iffy, declining US real bond yields are a fundamental positive, making non-yielding gold look comparatively more attractive. Benchmark US 10-year real yields are already off more than 40 basis points from the recent highs. The lower they go, the better it should be for gold. The geopolitical situation is another fundamental positive that could easily spark renewed upside should it deteriorate further.

-- Written by David Scutt

Follow David on Twitter @scutty

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