XAU/USD 9 July 2023
Gold (XAU/USD)
Fundamental Analysis
Did the NFP report save Gold? I don’t know, temporarily at least? Yes, for sure.
After a very strong ADP report on Wednesday, the Gold was heading south and except for the NFP report, breaking 1893 was inevitable.
Given that the NFP report favored Gold, it naturally had a negative impact on the USD. Therefore, if the CPI figures turn out to be lower than expected, it will raise doubts in the market about the highly anticipated 0.25% interest rate increase scheduled for July 26th.
The Federal Reserve is unlikely to catch the market off guard, so I think a significant decline in the CPI would be necessary for the Fed to consider pausing the rate hike.
It's important to note that an increase in average hourly earnings contributes to inflation. Such an increase implies higher consumer spending and greater demand, which in turn leads to higher prices.
I believe that the market has overreacted to the NFP (Non-Farm Payrolls) report, and as a result, we may witness a reversal in price movements for the USD and Gold that occurred on Friday. This reversal is likely to persist until the release of the CPI (Consumer Price Index) on Wednesday.
Updated interest rates probabilities below. Probability is up from last week’s report.
cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Now, are all those hikes already priced in? I strongly doubt it.
I quote from last week’s report: “From a deep-rooted standpoint, I have an unwavering conviction that Gold is poised to face intense scrutiny, and an inevitable plunge lies on the horizon”.
There are still four expected increases in interest rates before the end of the year that have not been factored into current market prices. However, if the Consumer Price Index (CPI) released on Wednesday shows low inflation, it may cause the market to question the likelihood of the anticipated rate hike in July. In such a scenario, I believe the statement mentioned earlier may still hold true.
Before looking at Gold, let’s check the USD first.
On the daily chart, the USD looks so bearish. Price closed substantially below the MA20, MA50, and MA100 with immediate extremely solid resistance at 102.8 – 103. This level should be watch closely.
Gold is also trading below all three averages, and this doesn’t align with the inverse relation with the USD index which you can clearly see in the below chart.
Technical Analysis
We could see a slight rally in Gold after Friday’s jobs report until CPI is out. MA20 @ 1929, MA100 @ 1948, and MA50 @ 1962 which in my opinion should limit any upside attempts.
One thing to note, Gold finally close above the descending trend line for the first time. This could be bullish.
Expecting choppy price action until the CPI figures are out.
From a technical standpoint, we are still range bound between 1900-1940. If Friday price action continues, I expect a test of at least the MA100 at 1948, which might be extended to test the MA50 at 1962. On the support side, I believe 1893 should limit any downside moves until the CPI is out.
Looking at supports and resistances:
Gold Resistance
1929, 1948, 1962
Gold Support
1893 June 29 low
Bollinger Bands lower band @ 1896 (dynamic; changes daily) usually acts as a support. The lower yellow line (band) in the above chart
For next week calendar, On Wednesday, CPI will be the main focus.
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