The more
hawkish FOMC dot plot led to a huge selloff in Gold as the rise in real yields
increases the opportunity cost of buying into Gold even more. As long as the
economic data remains this resilient, we will likely see more downside for Gold
as the Fed will keep its hawkish stance. For another major rally, Gold will
need bad data as the Fed looks willing to cut rates if real yields rise too
much as some FOMC members have indicated in their remarks. The data needs to
point to a recession though as without one the Fed won’t be comfortable in
cutting interest rates prematurely.
Gold Technical Analysis –
Daily Timeframe
Gold Daily
On the daily chart, we can see that we got a huge
selloff following the more hawkish than expected FOMC dot plot. It looks like
the Fed’s projection acted like a wakeup call for Gold bulls and the price
started to catch with real yields which have been rising strongly in the past
few months. Right now, the price is a bit overstretched as depicted by the
distance from the blue 8 moving average. In such
instances, we can generally see a pullback into the moving average or some
consolidation before the next move.
Gold Technical Analysis – 4
hour Timeframe
Gold 4 hour
On the 4 hour chart, we can see that we have a good
resistance zone
around the downward trendline where we
can also find the confluence of the
previous swing high level and the 38.2% Fibonacci retracement level.
That’s where the sellers will have a better risk to reward setup if the price pulls
back into that zone. The buyers will need the price breaking above the
trendline to turn the trend around and start targeting the highs.
Gold Technical Analysis – 1
hour Timeframe
Gold 1 hour
On the
1 hour chart, we can see that we have a divergence with
the MACD which
is generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, we should see a pullback into the 1875 resistance zone
where the sellers will step in with a defined risk above the trendline to
target the 1805 level. The buyers, on the other hand, are likely to pile in
around here with a defined risk below the low to target the 1875 resistance
first and a break above the trendline next.
Upcoming Events
This week we have many key economic releases that will
culminate in the NFP report on Friday. Today, we will see the latest ISM
Manufacturing PMI. Tomorrow, we will have the Job Openings data which led to a
strong rally the last time as the big miss was interpreted as a good thing due
to less labour market tightness and less hawkish Fed. On Wednesday, it will be
the time for the ADP report and the ISM Services PMI. On Thursday, we will see
the Jobless Claims data, which continues to show a solid labour market. Finally
on Friday, it will be the time for the NFP report which is the only one the Fed
will see before its next rate decision. Gold is likely to react positively to
negative data and vice versa in case of positive data.