XAU/USD is in for a busy US-focused Trading day

GOLD OUTLOOK & ANALYSIS

  • US retail sales, the Fed speech and the US debt ceiling update are in focus today.
  • Implied Fed funds futures continue to trend towards caution.
  • Technical analysis reflects the ambiguity of the macroeconomic environment.

Underlying background for XAU/USD

Gold prices again moved within a relative range on Tuesday as markets await the upcoming US debt ceiling meeting. Yesterday’s Fed officials offered differing views, ranging from maintaining aggressive monetary policy to being more vigilant and keeping interest rates at current levels. Traditionally, Fed guidance is highly respected by the financial markets, but recently this has diminished and I believe the upcoming data will carry more weight for the USD/gold rate. However, there are more Fed speakers later today (see economic calendar below) where we will see if the majority supports another rate hike or not.

Retail sales, the only major event on the calendar, is expected to be higher than in March, so the gold price could continue to trend lower.

ECONOMIC CALENDAR

Source: DailyFX Economic Calendar

Money markets are expecting interest rate cuts of around 68 basis points by the end of the year, which I think might be premature at this stage. More data is needed and there is a high probability that pricing will change (fewer rate cuts), which could have a negative impact on gold.

Likely Federal Reserve interest rates

image2.png

Source: Refinitiv

Real yields (see chart below) reflect a more cautious market and given the high level of uncertainty from a macroeconomic perspective, markets need direction before we see a convincing move. Real yields are highly correlated with the gold price, as a higher real yield increases the opportunity cost of owning the yellow metal and vice versa.

REAL 10-YEAR US Yields

image3.png

Source: Refinitiv

TECHNICAL ANALYSIS

GOLD PRICE DAILY CHART

image4.png

Daily XAU/USD price action has been subdued recently due to fundamental factors. Psychological support at $2000.00 remains intact after the retracement from the all-time highs at $2081.82. As I mentioned in a previous analysis, the bearish/negative divergence has now gained some traction after the long upper wick on May 4. The current reading of the Relative Strength Index (RSI) shows no preference for bulls or bears and reflects the above fundamental variables influencing the gold price.

Resistance Levels:

Support Levels:

  • 2000.00/Trendline support
  • 50-day MA (yellow)

IG CUSTOMER SENTIMENT: BEARISH

IGCS shows that retail traders are clearly LONG on gold at the moment, with 60% of traders currently holding long positions (at the time of writing).

Leave a Comment