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Gold Technical Analysis: Gold Will Suffer with USD Strength

  • XAU/USD gold price completed on Friday an upward breach, after falling to the support level at $1952 an ounce, its lowest in six weeks.
  • The recovery on Friday extended the resistance level at $1984 an ounce, before closing the week's trading, stable around $1977 an ounce.
  • The strong selling operations that the gold market was exposed to were primarily amid a strong recovery of the US dollar with momentum from the statements of many US central bank policy officials.
  • This confirmed that the bank is determined to continue tightening until US inflation reaches the bank’s goal, and the results of US data confirmed these signs.

Economic Outlook

The XAU/USD gold price is trading affected by the results of recent economic data. The US Initial Jobless Claims for the week ending May 12th exceeded the expected claims number of 254K by a count of 242K. On the other hand, the previous week's continuing claims beat expectations at 1.818 million with a tally of 1.790 million. The Philadelphia Fed Manufacturing Survey for May also beat the expected reading of -19.8 with a reading of -10.4.

Elsewhere, US Retail Sales for April missed the expected change (MoM) by 0.7% with a change of -0.4%. On the other hand, the retail sales watch group for the month beat the expected change of 0% with a change of 0.7%, while the retail sales outside of automobiles matched expectations of 0.4%. On the other hand, the US building permits for the month of April lost the estimated toll of 1.437 million by 1.416 million, while the number of initial homes for this period exceeded the expected 1.4 million by 1.401 million.

On the monetary policy front:

US Federal Reserve Chairman Jerome Powell has given a clear signal that he is inclined to pause US interest rate increases next month, taking the lead in the policy debate after several officials suggested they wanted to keep going higher. "We've come a long way in tightening, the policy stance is constrained, and we face uncertainty about the delayed effects of our tightening thus far and about the extent of credit tightening from recent bank pressures," Powell said at a Fed conference call on Friday. And "having come this far, we can afford to look at evolving data and projections to make accurate assessments."

Overall, investors cut bets on a US interest rate hike next month to around 18% after Powell's comments, compared to 33% before he spoke.

Technical analysis of gold prices:

In the near term and according to the performance of the hourly chart, it appears that XAU/USD gold price has completed an upward breach from the descending channel formation. This indicates a significant change in market sentiment in the short term from bearish to bullish. Therefore, the bulls will look to extend the current rebound towards $1,989 or higher to $2002 an ounce. On the other hand, the bears will target profits around $1,967 or lower at the $1,955 support.

On the long term, and according to the performance on the daily chart, it appears that XAU/USD gold price has completed a bearish breach to form an ascending channel. This indicates a significant change in the long-term market sentiment from bullish to bearish. Therefore, the bears will look to extend the current decline towards $1934 or lower at $1885 an ounce. On the other hand, the bulls  will target long-term earnings at around $2021 or higher at $2070 an ounce.

The gold market will be affected this week by the reaction of the US dollar to the announcement of the growth rate of the US economy, the preferred inflation reading of the US Federal Reserve Bank, and the content of the minutes of the last meeting of the US Federal Reserve Bank. This is in addition to the fate of the agreement on the US debt ceiling. It is truly an important and crucial trading week for the gold market.

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Mahmoud Abdallah
About Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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