XauUsd- Will CPI trigger a 500 pips drop?
Updated
Fundamentals:
Given the persistent challenge of downshifting inflation within the U.S. economy this year, market participants eagerly await the release of March Consumer Price Index (CPI) figures by the U.S. Bureau of Labor Statistics on Wednesday.
This report carries significant potential to induce volatility across various asset classes, necessitating traders to brace themselves for potentially volatile market conditions, particularly if the incoming data deviates from expectations.
Projections indicate that the headline CPI is expected to have risen by 0.3% monthly, which would elevate the yearly reading to 3.4% from the previous 3.2%.
Similarly, the core CPI, excluding food and energy, is anticipated to exhibit a 0.3% increase on a seasonally adjusted basis. However, the 12-month rate is forecasted to moderate to 3.7% from the prior 3.8%, marking a modest but encouraging step toward addressing inflationary concerns.
While recent hotter-than-anticipated CPI and employment figures have prompted a shift in Fed interest rate expectations towards a more hawkish stance in recent weeks, investors still perceive a greater than 50% probability that policymakers will maintain their current stance at the June meeting. Nonetheless, this sentiment could be subject to change if price pressures exhibit signs of reacceleration, jeopardizing progress toward disinflation.
Potential scenarios (in theory):
1. CPI report exceeds projections:
Should the CPI report surpass expectations, market participants are likely to interpret this as a signal that inflationary pressures are resurging. This would challenge the notion that earlier price spikes observed this year were transitory, thereby reinforcing the likelihood of a prolonged struggle to restore price stability. Consequently, the Fed may reconsider its policy outlook, potentially deferring the commencement of its easing cycle. This scenario is anticipated to be supportive for the U.S. dollar but unfavorable for XauUsd.
2.Inflation figures fall below expectations:
Conversely, if the inflation numbers come in below expectations, markets are expected to respond positively, particularly if the deviation is substantial. This outcome could prompt traders to bolster their expectations of the Fed initiating rate cuts in June, potentially amounting to at least 75 basis points of easing this year, aligning with the central bank's prior dot plot projections. A dovish repricing of interest rate expectations is likely to exert downward pressure on Treasury yields, thereby dampening the U.S. dollar while bolstering XauUsd.
Technicals:
From a technical standpoint, XAUUSD has been on a constant upward trajectory since March 25th, with only one red daily candle observed thus far.
Additionally, since April 1st, XAUUSD has achieved an all-time high each day, signaling a potential correction on the horizon.
Looking at resistance levels, we have encountered one significant resistance point indicated by yesterday’s intraday double top at 2365. On the downside, key support levels begin at 2330 and are further reinforced by the important zone around 2300.
Putting aside the fundamentals outlined earlier, in my personal opinion, I anticipate XAUUSD to correct by at least 500 pips this week, regardless of the outcome of the Consumer Price Index data.
I am inclined to sell in the event of a new all-time high.
Given the persistent challenge of downshifting inflation within the U.S. economy this year, market participants eagerly await the release of March Consumer Price Index (CPI) figures by the U.S. Bureau of Labor Statistics on Wednesday.
This report carries significant potential to induce volatility across various asset classes, necessitating traders to brace themselves for potentially volatile market conditions, particularly if the incoming data deviates from expectations.
Projections indicate that the headline CPI is expected to have risen by 0.3% monthly, which would elevate the yearly reading to 3.4% from the previous 3.2%.
Similarly, the core CPI, excluding food and energy, is anticipated to exhibit a 0.3% increase on a seasonally adjusted basis. However, the 12-month rate is forecasted to moderate to 3.7% from the prior 3.8%, marking a modest but encouraging step toward addressing inflationary concerns.
While recent hotter-than-anticipated CPI and employment figures have prompted a shift in Fed interest rate expectations towards a more hawkish stance in recent weeks, investors still perceive a greater than 50% probability that policymakers will maintain their current stance at the June meeting. Nonetheless, this sentiment could be subject to change if price pressures exhibit signs of reacceleration, jeopardizing progress toward disinflation.
Potential scenarios (in theory):
1. CPI report exceeds projections:
Should the CPI report surpass expectations, market participants are likely to interpret this as a signal that inflationary pressures are resurging. This would challenge the notion that earlier price spikes observed this year were transitory, thereby reinforcing the likelihood of a prolonged struggle to restore price stability. Consequently, the Fed may reconsider its policy outlook, potentially deferring the commencement of its easing cycle. This scenario is anticipated to be supportive for the U.S. dollar but unfavorable for XauUsd.
2.Inflation figures fall below expectations:
Conversely, if the inflation numbers come in below expectations, markets are expected to respond positively, particularly if the deviation is substantial. This outcome could prompt traders to bolster their expectations of the Fed initiating rate cuts in June, potentially amounting to at least 75 basis points of easing this year, aligning with the central bank's prior dot plot projections. A dovish repricing of interest rate expectations is likely to exert downward pressure on Treasury yields, thereby dampening the U.S. dollar while bolstering XauUsd.
Technicals:
From a technical standpoint, XAUUSD has been on a constant upward trajectory since March 25th, with only one red daily candle observed thus far.
Additionally, since April 1st, XAUUSD has achieved an all-time high each day, signaling a potential correction on the horizon.
Looking at resistance levels, we have encountered one significant resistance point indicated by yesterday’s intraday double top at 2365. On the downside, key support levels begin at 2330 and are further reinforced by the important zone around 2300.
Putting aside the fundamentals outlined earlier, in my personal opinion, I anticipate XAUUSD to correct by at least 500 pips this week, regardless of the outcome of the Consumer Price Index data.
I am inclined to sell in the event of a new all-time high.
Note
Correction for XauUsd seems to have started.Note
XauUsd saw high volatility today which is usually indication of a top
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