Gold Dollar Holds Steady Ahead of ISM Services PMI as Yields Rise
After Tuesday’s strong rebound in the US dollar – notably against the yen – and bond yields, investors will be watching the markets closely to see if there will be a follow-up to this move. This puts gold in the spotlight, especially after it pulled out of a key technical area. But was it just a jump in the new trend, or something more significant?
There are three main focal points for currency and gold traders today:
- ISM services PMI as of 3:00 p.m. BST (10:00 a.m. EDT) – the global PMI is expected to grow at a slower pace of 53.5 from 55.3 last seen. It is also worth keeping a close eye on prices, new orders and employment sub-indices.
- Factory orders also expected at 3:300 p.m. BST (10:00 a.m. EDT) – 1.3% expected vs. 1.6% previously.
- The Fed is talking: Thomas Barkin will speak on “Winning the War on Inflation” at 4:45 p.m. BST (11:45 a.m. EDT).
Gold and U.S. government bonds gave up earlier gains on Tuesday as yields jumped after St. Louis Federal Reserve Chairman James Bullard gave no indication of a slowdown in the fight against the Fed against inflation, despite data showing that the US economy is in recession.
Bullard said he believes the path for rates is more data driven than it has been so far, but the Fed needs to move into more restrictive rate territory. He added that if inflation hangs higher, the central bank will have to have higher rates for longer.
Around the same time, pressure on risk grew as Nancy Pelosi’s plane approached Taiwan, with investors growing increasingly worried about retaliation from China. But as soon as Palosi’s plane landed, the pressure eased as bonds were sold and stocks bought.
Bullard’s hawkish comments and squaring of bearish bets ahead of Pelosi’s arrival in Taiwan both helped send bonds tumbling, pushing the benchmark 10-year Treasury yield to THAT pivotal level ahead of macro events. from today:
Interestingly, the rebound in the US 10-year bond yield came just days after the neckline of its H&S support broke, when Fed Chairman Jay Powell appeared to give the indication that rate hikes would slow amid concerns about growth and the spike. inflation. If we see the cleavage decisively recovered, this should put more significant pressure on gold. For now, it’s being treated as a simple rebound from what has turned into a short-term downtrend since mid-June.
Let’s see if today’s US data or the Fed’s speeches will lead to more volatility in bond prices – and, therefore, gold.
Gold followed the script pretty closely from a technical standpoint. We’ve been calling for gold to rally to at least $1850 in our recent releases, and here it did on Tuesday, before pulling back sharply – in part due to profit taking. Here he has created a possible reversal signal in the form of an inverted hammer candle. But so far there has been no downward follow-up, which I guess is a positive sign from a bullish perspective.
If it continues above Tuesday’s high, it will likely trigger a strong follow-up rally, as this would indicate that the bears are trapped. However, if Tuesday’s low breaks first and there is acceptance below, then $1740 could be the next stop.
What happens next will now depend on the direction of bond yields and the US dollar. Both have been in a general downtrend lately, but if either starts to move significantly higher again, it could see gold at least pause to breathe or, worse, reverse completely. As traders and technical analysts, we will let the market decide the direction and act accordingly. If you are not already long, it may be better to wait now for the market to provide us with new bullish signals.
Looking Ahead: U.S. Nonfarm Payrolls Report (Friday)
Once today’s release of the US Services PMI is complete, gold traders will be eagerly awaiting Friday’s release of the US Nonfarm Payrolls report. US jobs reports did not have the same impact on markets because the focus was on inflation and the economy. But if we start to see employment weakness again, it will make investors more worried about the health of the world’s largest economy and provide some support for gold.
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