FUNDAMENTAL
OVERVIEW
The price action
in gold has been mostly negative after the strong US NFP report triggered a
hawkish repricing, but the surge in oil prices increased the momentum. The escalation in
attacks between US and Iran, and Yemen’s Houthis attacks on Saudi energy
facilities, provided a tailwind for oil prices to push into new highs.
The momentum increased
as traders started to price in a prolonged conflict after Trump said that he expects the war with Iran to
end immediately after the US midterm elections in November, effectively acknowledging that the war is likely to
continue through at least the election period.
Yesterday, WTI crude oil broke through the psychologically
important $100 level
and triggered a hawkish repricing in interest rate expectations across the
board.
Today, the focus will be on the Core CPI M/M measure,
as that’s what the Fed members have been focusing on. Fed’s Waller recently
said that he would consider a rate hike in September if the monthly core
reading surprised to the upside. Unfortunately, that was before the latest
surge in oil prices.
Traders are now pricing in a 67% chance of a rate hike
at the upcoming meeting. I feel like an in-line CPI won’t be enough to steer
the market away from expecting a rate hike. If we go into the FOMC meeting with
higher probabilities for a rate hike, then the Fed will be forced to hike just
to avoid delivering a dovish surprise.
I think only a soft Core CPI could support gold in the
short-term, while an upside surprise will likely exacerbate the risk-off
sentiment and trigger a selloff, as the market could start pricing an even more
aggressive path for rate hikes.
GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see gold is trading at the 4,311 support. We can expect the buyers to step in here
with a defined risk below the support to position for a rally into the 4,890
level. The sellers, on the other hand, will want to see the price breaking
lower to pile in for a drop into the 3,885 level next.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
On the 4 hour chart, we
have a downward trendline defining the recent bearish structure. If we get a
pullback into the trendline, we can expect the sellers to lean on it with a
defined risk above it to keep pushing into new lows. The buyers, on the other
hand, will look for a break higher to increase the bullish bets into the 4,890
level next.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add as it’s now just about waiting for the US CPI release. Entering
now would be very dangerous as the spikes might be big. A soft CPI will likely
trigger a pullback into the trendline and might even take gold into higher
prices. A hot CPI, on the other hand, will highly likely trigger a big selloff.
UPCOMING CATALYSTS
Today, all eyes
will be on the US CPI report.
This article was written by Giuseppe Dellamotta at investinglive.com.