Gold Cautious Ahead of US Inflation & the Fed

  • XAUUSD
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XAU/USD Analysis

Market participants brace for a data-deluge this week and highly consequential events, with the US Consumer Price Index and the Fed's monetary policy decision standing out, tomorrow and on Wednesday respectively.

Inflation has softened according to recent data, with the headline CPI having eased to +7.7% y/y in October and the lowest level since February. The Core reading which excludes food and energy prices, had come in at +6.3%, from +6.6% y/y in the previous month.

The Fed has been running its most aggressive tightening cycle in many decades, with a series of historically large 75 basis points rate hikes. As they try to assess the economic impact of their actions, officials are now looking to moderate the pace hikes and the easing in consumer prices is supportive.

Chair Powell had recently signaled a smaller increase in the upcoming meeting, but had also pointed to a higher terminal rate than previously expected, while shifting focus away from the size of rate hikes, to period of time policy will need to remain restrictive. [1]

Furthermore prices remains high and Friday's Produce Price Index (PPI) cast doubt over market hopes for peak inflation. Furthermore, the latest strong Jobs Report and the high wages, along with recent robust economic data suggest that the Fed still has work to do on the rates front.

XAU/USD comes from its best month in over a year and started December with five-month highs, helped by expectations for a less aggressive Fed and softer inflation. This has brought 50% Fibonacci of the 2022 high/low drop in the spotlight (1,842), although bulls will need help form the incoming data to take it out and look towards 1,880.

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The recent rally however is contained, as further Fed tightening will likely be needed. XAU/USD failed to break fresh ground on Friday and has been unable to stay above the 38.2% Fibonacci. This creates risk for a slide towards the EMA200 (at around 1,745), but a catalyst will be required for a test and daily closes below it that would pause the upside momentum.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 16 Apr 2024 https://www.federalreserve.gov/newsevents/speech/powell20221130a.htm

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