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July 9, 2018

IronFX, Gold Market Outlook - Stepping on the USD to rise

Gold prices were largely negatively correlated to USD prices for the past week.

This article is originally referred from IronFX News.

It would be characteristic that the shiny metal touched its lowest price for the past 6 months on Tuesday the 3rd of July as it traded even lower than the 1247.50 (S2) resistance line and testing the 1236.68 (S3) support barrier, while the USD/JPY touched one of its highest points for the same period.

Only once the greenback started to soften, that same day, did gold prices start to pick up.

The bullion got its first boost during that day’s Asian session and a new morning had broken for the European session as gold traders took extensive advantage of the low prices, opening long positions.

The bullions prices shut through the 1247.50 (S2) resistance line even breaking the 1258.50 (S1) resistance line for a short while on Wednesday.

The bullion remained at a sideways movement for the next few days as it constantly tested the 1258.50 (S1) resistance line (now turned to support).

It should also be noted that not even the release of the soft content of the Fed’s last meeting minutes was not able to push the bullion clearly beyond the boundaries of the 1258.50 (S1) resistance level.

Actually the gold’s prices slipped ahead of the release as a number of investors seemed to expect a hawkish tone in the Fed’s latest meeting minutes.

However it stabilized upon release and corrected upwards later on.

We see the case for Friday to have been the catalyst for gold prices, as the soft US employment data did not influence the precious metal’s prices substantially that day but the pressure seemed to accumulate with the release of the US employment report for June that day.

The US employment report caused the US Dollar to weaken against a number of its counterparts on Friday, as a softer than expected employment report was released.

Despite there being a higher than expected NFP figure, the nonexistent acceleration of the Average Earnings growth rate, as well as the increase in the unemployment rate blurred the picture.

The wages component, could have been the focal point once again and the lack of progress could imply weaker inflationary pressures.

According to analysts, it should also be noted that the 10 year treasury yield dropped to one of its lowest levels for the past six weeks, causing the spread between the 10 year and the 2 year yield to flatten.

Dark clouds seemed to gather over the greenback in the American session on Friday and a possible USD depreciation loomed over gold investors.

The precious metal’s prices, got the second boost in the past 7 days on Monday, as they finally managed to break the 1258.50 (S1) resistance level (now turned to support) and trade around 1265 USD as these lines are written.

It would be evident that at the same time the USD has retreaded against its major counterparts (EUR, GBD, AUD and NZD) to a wider or lesser extent.

The rally marked a two week high and as analysts have proposed, gold is pushing higher in the dollar’s weakness.

We currently share that view in the absence of any extraordinary fundamental uncertainty, gold prices will remain negatively correlated for the current week and we could see the bullion’s prices rise even further should there be further weakening of the USD while the vice versa scenario cannot be excluded at the present.

XAUUSD Price Chart

As mentioned above gold reversed its downward direction on Tuesday after hitting its lowest point for over six months.

On a technical basis, it should be noted that the bullion broke the downward trend line and for some days it seemed to be contained in a sideways movement near the 1258.50 (S1) support line.

However, the pair clearly broke the upper boundary of its sideways movement on Monday, hence we remove the sideways bias which was imposed until Friday.

It should be noted that the bullion’s RSI indicator approached the reading of 70 in the 4 hour chart, implying that an overcrowded long position may be near for gold.

Technically, gold’s prices once again seem to be approaching a make or break point, however we retain the view that should the USD correct to even lower grounds we could see the gold climbing to even higher grounds, especially if the 10 year treasury yield drops even further.

Should the bears continue to have the upper hand on gold, we could see its prices breaking the 1258.50 (S1) support line and aim if not break the 1247.50 (S2) support barrier once again.

On the other hand, should the bulls take over, we could see gold’s value, breaking the 1270.00 (R1) resistance line and aim for the 1280.75 (R2) resistance barrier.

Original Source: IronFX News

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