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The market has changed its face! US data is full of bad news, the dollar fell to a two-week low, gold broke out

author:Tao Li Spring Breeze is rich

The dollar index continues to come under pressure and is now trading around 103.30, while spot gold rose more than $25 yesterday to maintain a firm trend, currently trading around $1965 an ounce. FXStreet analyst Anil Panchal pointed out that gold prices seem to break through the $1985/oz resistance as weaker US data weighs on the dollar and yields.

Pankhal noted that spot gold posted its biggest one-day gain in five weeks on Thursday, and was trading near $1965 an ounce in early Asian trading on Friday, still hovering near weekly highs. Notably, a series of pessimistic US economic developments weighed on Fed rate hike bets and the US dollar, supporting the bullish bias around gold.

Spot gold closed Thursday at $1965.25 an ounce, up $25.53 or 1.32 percent, hitting an intraday high of $1970.55 an ounce.

Gold prices "cheer" for dollar weakness

On Thursday, the dollar was hit hard by dovish concerns about the Federal Reserve amid continued economic weakness, and gold prices posted their biggest one-day gain in five weeks, Panchal said.

The market has changed its face! US data is full of bad news, the dollar fell to a two-week low, gold broke out

The dollar index tumbled to a more than two-week low on Thursday on the weaker-than-expected U.S. jobless claims data, with non-U.S. currencies rising.

The ICE dollar index, which tracks the greenback against six major currencies, tumbled 0.74 percent on Thursday to 103.33, its lowest closing level since May 23. EUR/USD rebounded nearly 0.8% to 1.0782, brushing a new two-week high, GBP/USD also hit a near one-month high, rising about 1% to 1.2558, USDCAD fell 0.1% to 1.3357, and the Bank of Canada unexpectedly raised interest rates to a 22-year high on Wednesday, providing support to the loonie.

Initial jobless claims rose 28,000 to 261,000 in the week ended June 3, the highest level since October 2021, compared with 235,000 expected and 233,000 (revised) in the previous month, Labor Department data showed on Thursday.

The market has changed its face! US data is full of bad news, the dollar fell to a two-week low, gold broke out

(U.S. Jobless Claims Source: Bloomberg)

The four-week moving average of initial jobless claims rose to 237,250, up 7,500 from the previous week's revised average. The data is often seen as a more reliable measure of the labor market because it smooths out weekly fluctuations.

Marc Chandler, chief market strategist at Bannockburn Global Forex, said the market now sees a more likely Fed rate hike in July, but the chances of the Fed raising rates again in either June or July are slim because the economy looks set to start softening.

Panchal said earlier this week the Institute for Supply Management (ISM) Services PMI, Markit PMI and Factory Orders Index also released pessimistic results and weighed on the hawks of the Federal Reserve while weighing on the U.S. dollar in favor of gold buyers.

Panchal noted that given the lackluster U.S. economic data, gold buyers seem almost certain that the Fed will not raise interest rates at next week's FOMC monetary policy meeting. In addition, disappointing US data also reduced market bets on a July rate hike and hit the dollar hard, while also adding to gold's upward strength.

The news from China is also positive for gold prices

As a result of the above, as well as upbeat news from China, global markets reflected risk appetite sentiment, which in turn pushed gold prices higher.

Several Chinese state-owned banks, including Industrial and Commercial Bank of China, Bank of China and China Construction Bank, cut their benchmark interest rates. It has also sparked speculation that the People's Bank of China (PBOC) will also cut interest rates.

In addition, concerns about intervention in the Chinese market are also beneficial to gold bulls, People's Bank of China Vice President said, "We have the confidence, conditions and ability to maintain the stable operation of the foreign exchange market." Li Yunze, head of China's State Financial Regulatory Administration, made the same remarks, expressing optimism about the Chinese economy and that "the economy is still recovering," adding that demand would be boosted.

Against this backdrop, US Treasury yields fell, while Wall Street benchmarks rose, putting downward pressure on the dollar. The benchmark U.S. 10-year yield eased to 3.72 percent from its two-week high, while the two-year yield ended a two-day winning streak and was last down to 4.52 percent.

Technical analysis of gold

Panchal pointed out that from the gold daily chart, gold prices are staying within the trading range of three weeks ago, including the 100-day moving average support and a slight downtrend line since May 18, close to $1940/oz and $1985/oz, respectively.

While watching gold prices closely, it is easy to build a bullish chart supported by the 14-day Relative Strength Index (RSI).

Gold lows continue to move upwards and take support from the rising RSI line, while also forming higher lows on oscillators, which in turn confirms the market's gradual bullish tendency towards gold.

As a result, gold is expected to challenge the upper edge of the trading range, close to $1,985 an ounce, Panchal said. However, if this resistance is broken, gold buyers will face multiple obstacles near the psychological mark of $2,000 an ounce.

The market has changed its face! US data is full of bad news, the dollar fell to a two-week low, gold broke out

(Spot gold daily chart Source: FXStreet)

On the other hand, Panchal said that if gold closes below the 100-day moving average support level of about $1940/oz, it will negate the bullish chart signal and may pull gold towards the $1985-80/oz support area.

In terms of short-term trends, Panchal expects gold prices to rise further.

This article is reprinted from the Shanghai Silver Association

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