Breakout Fails to Kick on as Technicals Flash Mixed Signals

Gold price, charts and analysis:

Money Forecast: Neutral

• The prospect of winning a gold medal in the strongest week for the first time in about 3 months.
• The lack of high-impact US data and the Fed’s blackout period could add further pressure to the dollar and keep the gold bull in check.
• Technical images mixed as weekly and daily timeframes flash mixed signals.
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read more: USD/CAD Prediction: 1.3000 Beckons as the Dollar Index (DXY) Continues to Fall

This week’s review

Gold has finally broken out of the range below the $1,940 handle that has kept the bulls at bay over the past two weeks. Market participants are becoming more optimistic about the Fed’s chances of reaching record high interest rates at the FOMC meeting on July 26 after the dollar index plunge triggered by weak US CPI data. . Gold prices are headed for their strongest week in three months.

US 2-Year and 10-Year Yields

Source: TradingView, created by Zain Vawda

Lower DXY and US Treasury yields are clearly driving this move, and looking at the euro and sterling rally against greenbacks, $1980 levels look attractive, with a bit more post-breakout move. I expected there to be. However, the precious metal is struggling to rise above the $1,960 resistance area, which almost limits further attempts to move higher. Friday also saw U.S. Treasury yields attempt to recover, especially as they rose from a low of 4.6% to 4.75% for the first time in two years, which could explain gold’s poor performance on Friday to close the week. . Let’s take a look at the gold price movement over the next week.

US Retail Sales, Building Permits, China GDP, Fed Blackout Period

Heading into next week, I believe gold could rise further as the macro situation does not look attractive for the USD and DXY. The only data that will have a significant impact over the next week are US retail sales and building permits, which are not the big market-moving events. With this, I expect DXY to continue its downtrend and likely find selling pressure even if it tries to move higher. This could further encourage gold bulls and push the precious metal price closer to the $2,000 levels.

Market prices were little changed at the Fed’s meeting in July, with the market still expecting a 25 basis point rate hike. However, the main reason for the USD sell-off is that market participants believe the Fed’s rate hike cycle will be complete after the post-inflationary July rate hike, which may not be far off the mark. The Fed’s entry into a “blackout period” means the dollar is unlikely to get a boost from Fed policymakers in the weekend halfway before the July 26 FOMC meeting.

China’s GDP data will also be released early in the week, but the Asian nation’s sluggish import-export data last week and continued sluggish economic recovery could affect gold prices as well. China remains one of the world’s largest gold importers, and a weak GDP could fuel fears of weaker demand. A possible stimulus package by the Chinese government is rumored, which could be a boon for gold and a further boost for precious metals.

Below are three ‘high rated’ risk events for the coming week on the economic calendar 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 has a morning star candlestick pattern printed on it, with gold on track for its strongest week in three months. Following last week’s close, the 50-day moving average crossed above the 100-day moving average, creating a golden cross pattern that suggests further gains, so it’s not without signs from a technical standpoint.

XAU/USD Weekly chart – July 14, 2023

Source: TradingView

Interestingly, when we break it down to the daily timeframe, we see death cross patterns that are completely inconsistent with the weekly timeframe. This could also explain some of the failure of the gold bulls to take full advantage of the DXY decline this week. Friday’s daily candlesticks are heading toward the same close (at the time of writing), which could be a sign of an early week pullback, with first support areas at the 50- and 100-day MAs. $1954 per ounce. A breakout of this could lead to a retest of the bull flag breakout area near the $1935-$1940 area.

Given the mixed signals on the weekly and daily charts, any further upside from here would see the $1980 mark (highlighted in pink on the chart) before focusing on the coveted $2000 handle. ) there will be a nearby resistance area.

XAU/USD Daily chart – June 14, 2023

Source: TradingView

Written by: Zain Vawda, Market Writer DailyFX.com

Contact and follow Zain on Twitter: @zvawda