Gold extends the losses as hawkish Fed risks keep weighing on precious metals
FUNDAMENTAL
OVERVIEW
Gold extended the losses yesterday as traders likely hedged into a
potentially hot US CPI report today. Friday’s strong NFP number triggered a
hawkish repricing in interest rate expectations and traders are now questioning
not if, but when and how many rate hikes the Fed will deliver this year.
The limited US-Iran escalations are not the main driver anymore as the
focus turned to the Fed given the prolonged negotiating stalemate and Strait of
Hormuz closure. Unless we get a surprising breakthrough in negotiations, the
path of least resistance will continue to be to the downside.
As mentioned previously, we can now expect the Fed to drop the easing bias
at the upcoming meeting, but the focus will be mostly on the dot plot and
forward guidance. Even though a rate hike is now fully priced in, if the Fed
endorses the market pricing, it will effectively confirm that the bias has now
shifted to tightening and might trigger another selloff in gold.
Today, all eyes will be on the US CPI report. Upside
surprises would be seen as more hawkish and will likely weigh further on
gold prices. Conversely, lower than expected figures or even in line ones might
alleviate some of the most hawkish fears and could trigger a relief rally in
the short-term.
GOLD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that gold is breaking below the major upward trendline. What happens here
will likely depend on the US CPI report today. The buyers will want to see the
price rising back above the trendline to position for a rally into the 4,600
level. The sellers, on the other hand, will continue to pile in around these
levels to extend the drop into the 3,885 level next.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
On the 4 hour chart, we have
a minor downward trendline defining the bearish momentum. If we get a pullback,
we can expect the sellers to lean on the trendline with a defined risk above it
to keep pushing into new lows. The buyers, on the other hand, will look for a break
to increase the bullish bets into the next trendline.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the price is rejecting the broken major upward trendline
ahead of the CPI release. The bias remains skewed to the downside but a soft or
even in line CPI could lead to a short-term relief rally on easing hawkish Fed
fears. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we have the US
CPI report. Tomorrow, we get the latest
US Jobless Claims figures and the US PPI report. On Friday, we conclude the
week with the University of Michigan consumer sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.