A busy week lies ahead for gold traders, as updates on multiple fronts will be provided, ranging from the crucial inflation update, an important semi-annual testimony from the head of the US central bank, Chair Powell, before the Senate’s Banking Committee but also the latest leading indicators data from the University of Michigan, which are expected to carve out a potential path of action for the monetary policy decisions of the bank. In this report we aim to shed light on the catalysts driving the precious metal’s price, assess its future outlook and conclude with a technical analysis.
Rise in unemployment invigorates rate cut bets
The precious metal has received a wave of inflows late last week, as the latest employment report from the US for the month of June showcased that the labour market is gradually losing steam.
More specifically, the headline Non-Farm Payrolls figure toppled the 189k expectation, with the US economy adding 206k new jobs in June, signaling that the job creation mechanism is alive and well, but downward revisions of the April’s and May’s payroll counts however, invariably signaled that the US labour market is softening.
On the unemployment front however, a surprise acceleration was observed yet again, with the rate exceeding the 4% estimate and climbing at the 4.1% level and hit a 2 and half year high. This was the 4th consecutive monthly rise of the unemployment rate and this development alone acted as the catalyst that put downward pressure of treasury yields and the greenback, and reinvigorated speculations for two rate cuts, on in September and one on December.
At the same time, wage growth cooled to a three-year low, matching the wider market consensus yet the rate is still above the last 10 years’ average.
Looming CPI update to set the tone
Later this week, traders’ attention will invertedly shift towards the US CPI print for the month of June, as its development has everything to do with how Fed policymakers will deploy their policy practices for the rest of year. The debate between official has been whether the current state of inflationary pressures is sufficient enough to validate rate reductions of the key policy rate or whether the forecasted upside risks would keep the bank on hold for longer to make sure that inflationary fire gets suppressed once and for all, before loosening its stance.
Currently, money markets are indeed in favor of two rate reductions of 25bps each in the September and December meetings, whereas officials’ opinions range between a lone cut, no cuts and in one odd occasion, the possibility of one hike. Therefore, this brings the conversation to the one topic that could potentially provide us with more clarity as to what may materialize in the coming Fed meetings and that is June’s CPI print due out on this Thursday.
Economists project that inflation most likely eased further from the prior month’s 3.3% and fell to 3.1% level, which overall it is considered to be a favorable development in the Fed’s fight. The Core CPI rate however, is seen staying stuck at the 3.4% are however, which may fuel jitters for the extension of the bank’s cautious stance.
Nevertheless, from our point of view, should the actual rates match the aforementioned expectations, we would reasonably expect to see weakness arising for the dollar and bond yields, which could in theory support gold’s price, due to inherent negative correlation of these asset classes.
Gold Technical Analysis
XAUUSD H4 Chart
- Support: 2330 (S1), 2290 (S2), 2240 (S3)
- Resistance: 2390 (R1), 2450 (R2), 2500 (R3)
Looking at XAUUSD Daily Chart we observe the precious finding a floor under its feet and bouncing twice from the 2290 (S2) support area, breaking above the descending channel incepted since the 20th of May but having trouble breaching the $2390 (R1) ceiling during yesterday’s session.
We hold a bullish outlook bias for gold, albeit having some concerns about yesterday’s pullback which practically erased the entire advancement of the prior session. Nevertheless, at this point in time, the move as a whole did create a higher high and the pullback may just be the new higher low of the short-term shift in trend. Supporting our case is the pickup of the +DI and the fall of -DI according to the ADX indicator below our chart, signifying that buying strength and interest outshines the sellers. However, momentum did not yet breach the 20 threshold, which would have given more confidence in our assessment.
The modified MACD-v indicator below also confirms the momentum is with the bulls, given the crossover of the MACD above the signal line at the start of the month, but still substantial strength which could propel gold to higher ground has not yet materialized. Should, the bulls find enough resolve and momentum strengthens, we would reasonably expect to see the break above the $2390 (R1) closest resistance barrier and the shiny metal heading for the all-time high peak of $2450 (R2) once again.
On the other hand, should the bears take back control, a return of price action near the $2330 (S1) is expected, and should negative momentum aggravate, a break below and a move near the $2290 (S2) thrice tested support base may be reasonably expected.
Disclaimer: This material is for general informational & educational purposes only and should not be considered as investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked, in this communication.
