Gold Extends Losses to Key Tech after US Inflation & Hawkish Fed
XAU/USD Analysis
US CPI inflation eased again on January according to yesterday's release, but only slightly so and less than expected. Headline CPI came in at 6.4% y/y and the Core printed 5.6% y/y. Fed Chair Powell recently acknowledged the moderation on price pressures, speaking again last week of the "disinflationary process" that has begun. However, he warned that getting inflation down will require "quite a bit of time" and its going to be a "bumpy" process. [1]
Tuesday CPI data seem to support this view and markets have now embraced the Fed's projected policy path, following the surprisingly strong jobs report at the beginning of the month. They also led to a new round of hawkish remarks by Fed voters, such as Ms Logan who said yesterday that "we must remain prepared to continue rate increases for a longer period than previously anticipated" if necessary. [2]
At the time of writing, CME's FedWatch Tool assigns the highest probability to rates peaking at 5.50%, even higher that the Fed's implied terminal rate – in a repricing that supports the US Dollar. [3]
XAU/USD runs a losing February because of this, halting its three-month recovering and tests key technical levels on the downside today, as it extends its slide. The 1,830-27 contains the upper border of the Daily Ichimoku Cloud and the 38.2% Fibonacci of the 2022 Low/2023 high recovery. This makes it vulnerable to 1,800-1,796, but we are cautious for bigger slump that would take out 1,765.
On the other hand, the Relative Strength Index (RSI) moves towards oversold levels which may contain the decline and above the aforementioned key support, this is viewed as a limited correction. As such, we can see an effort to retake the EMA200 (1,874-7), but a strong catalyst will be needed for further advance past 1,909.
Markets now turn to the US retail sales and industrial production, which can determine the next leg of the move.
Nikos Tzabouras
Senior Market Specialist
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
| Retrieved 15 Feb 2023 https://www.youtube.com/watch | |
| Retrieved 15 Feb 2023 https://www.dallasfed.org/news/speeches/logan/2023/lkl230214 | |
| Retrieved 31 Mar 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html |
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