Bearish Breakout May be Limited as Recession Fears Grow

Gold price, charts and analysis:

Money Forecast: Neutral

read more: Gold Weekly Forecast: Gold (XAU/USD) Price Poised for Blockbuster Week

This week’s review

Gold’s bears have finally emerged this week as precious metal prices hit three-month lows, down about 2% at the time of writing. Hawkish central bank remarks from the European Central Bank (ECB) and Fed Chairman Jerome Powell during his semi-annual testimony on the Capitol building saw precious metals rise amid $1900 sentiment levels looking vulnerable earlier in the week. weighed down. Thursday’s hawkish surprises at the Bank of England (BoE) and Swiss National Bank (SNB) reminded the market that the rate hike cycle by major central banks may not be complete yet.

Precious metals ended the week rebounding on Friday as US and Eurozone PMI data lackluster and recession fears reignited. Gold tried to recover above the $1,930 handle as US yields fell, but struggled to sustain the rally after Europe closed at $1,918 at the time of writing.

Fezpeak, Core PCE Data and Recession Fears Boost Gold Prices Next Week

Despite breaking out of the recent range below, the gold price remains in a tight spot and it will be interesting to see if it follows through on the downside heading into the new week. Gold has been threatening some kind of retracement for some time and the overall uptrend is still very valid at this stage.

Heading into next week, there is quite a bit of macro data that could move the US dollar and yields, and thus the gold price. Earlier in the week, durable goods orders and consumer confidence data will be released before all eyes will be on the bank stress test results released by the Federal Reserve on Wednesday. Following the turmoil in the US banking industry, market participants will undoubtedly be interested in whether the worst is definitely over. Rising expectations of rate hikes and a continuation of hawkish FedSpeak could benefit the US dollar and push gold prices lower, while rising recession fears could support gold prices amid a rise in safe-haven assets. be. As I said, it’s a delicate pose.

Source: CME FedWatch Tool

Given that the market is pricing in the Fed’s July 25bps rate hike near 74%, and Fed Chairman Powell’s insistence on data dependency going forward, this week’s Core PCE report is a game-changer. may cause Core PCE data is, after all, the Fed’s preferred inflation gauge, and rate hike expectations could be positively repped if the PCE data outperformed expectations. If so, this could pose a challenge for the gold bulls and trigger a breakout of the psychological $1,900 level.

Below are five high ‘grade’ risk events on the economic calendar over the coming week and Fed Chair Powell’s speech that could impact gold prices and lead to volatility spikes.

For all market-moving economic releases and events, DailyFX Calendar

Technical outlook and final thoughts

XAUUSD’s weekly chart hit a new three-month low this week, following last week’s Doji candlestick closing. However, as the price is approaching the fib retracement zone of 61.8% and at the same time the 50-day moving average is almost above the 100-day moving average, we are seeing a golden cross pattern that suggests a possible recovery in the price of gold. is about to be Gold’s bullish trend is valid even if the weekly candlestick does not break below the previous low that relies on the psychological $1800 handle.

XAU/USD Weekly chart – June 23, 2023

Source: TradingView

Broken down to the daily timeframe, this story is further supported by Friday’s daily candlesticks. Friday’s daily candlestick is on track to record an inverted hammer candle at the close. Inverted hammer candlesticks typically precede a potential rally on Monday before US data and macro fundamentals start moving prices.

Having finally broken out of the $1940-1970 range, the question is whether the bears will take the lead next week and push the price below the psychological mark of $1900. A pullback on Monday could face resistance from the 100-day moving averages near the $1,942 handle, while a deeper pullback could bring the 50-day moving averages closer to $1,977.

Alternatively, a break below the $1,900 mark will face support near the $1,875 handle before the 200-day MA line focuses near $1,850.

XAU/USD Daily chart – June 23, 2023

Source: TradingView

Written by: Zain Vawda, Market Writer DailyFX.com

Contact and follow Zain on Twitter: @zvawda