The most recent release of the NFP report, which came out last Friday, once again surpassed expectations, extending its remarkable streak of positive outcomes to 14. However, a closer analysis of the report revealed less favourable aspects. The unemployment rate experienced a notable rise from 3.4% to 3.7%, marking the largest month-over-month increase since the onset of the pandemic. Furthermore, there was a slight decrease in average workweek hours, which can often indicate potential layoffs being considered by employers. Overall, the report presented a mixture of information that could be subject to different interpretations.
Shifting our focus to the US ISM Services PMI, it reported a significantly lower figure of 50.3 compared to expectations, narrowly missing the threshold for contractionary territory. The employment sub-index displayed contraction, while the prices paid sub-index witnessed a substantial decrease, returning to levels last observed in May 2020. As a result, the market responded by further diminishing the likelihood of the Federal Reserve (Fed) implementing additional interest rate hikes.
Additionally, recent unexpected rate hikes by the RBA and the BoC may have influenced risk sentiment, causing concerns that the Fed might follow suit. However, this seems unlikely as the Fed typically aligns its actions with market expectations. Moreover, it is important to consider that the CPI report has not yet been released.
Yesterday, we got a big miss in US Jobless Claims, which may be yet another sign of a weakening labour market. The market further priced out the rate hike odds in June as it now looks like a certain pause unless we get a hot CPI next week.
All of the above should have contributed to a rally in gold, but what we’ve seen was just a rangebound price action for the entire week. This should be a clear sign that the market is waiting for the next week’s big events before deciding where to go next.
Gold Technical Analysis – Daily Timeframe
On the daily chart, we can see that the gold’s selloff from the 2076 high stalled right at the trendline where we can also find confluence with the 50% Fibonacci retracement level and a previous swing support. There’s also a weekly 21 moving average right there that can be seen on a weekly timeframe. This support zone is key. If gold bounces and starts to rally, we can expect another test of the 2076 high with a possible breakout. On the other hand, if the price breaks through the trendline, we should see new lows coming and the 1800 level being the first line of support.
Gold Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can clearly see the rangebound price action since the break of the downward trendline. We are now stuck in this box, and this offers a good opportunity for both buyers and sellers. If gold breaks the resistance supported by a fundamental catalyst, then we should see the buyers piling in and extending the rally towards the 2076 level. Conversely, if the price breaks the support, the sellers should jump onboard and ride the selloff towards the 1800 level.
Gold Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that recently we had a selloff after the BoC surprising hike and yesterday the rally after the big miss in Jobless Claims. Such rangebound markets can chop out many traders as the price action remains erratic. The best strategy is generally to wait for a clear breakout and go with the flow. More aggressive traders may look at the 1970 swing high level as an opportunity to go long on a breakout after the miss in jobless claims yesterday.
