Gold Constrained after Hot US Producer Inflation & Ahead of the Fed

  • XAUUSD
    (${instrument.percentChange}%)

XAU/USD Analysis

After Tuesday's hotter than expected Consumer Price Index, yesterday's data from the producer side also surprised on the upside. Core PPI stayed at 2% y/y and headline accelerated to 1.6% and the highest level since September, exacerbating the sticky inflation theme.

The greenback benefited from the report, since it complicates the Fed's path towards lower rates and vindicates its reserved approach, just a few days before the next policy decision. CME's FedWatch Tool assigns the highest probability to 75 basis points of cut this year, but leaves room for less. [1]

XAU/USD dropped on Thursday and there is scope for decline towards the EMA200 (2,089-4), but strong catalyst would be needed for that and the downside appears well protected.

Despite the hot inflation data and the cautious stance by the Fed, policymakers have clearly pointed to multiple rate cuts this year and markets still expect this to start in June. On the technical front, XAU/USD defends the 23.6% Fibonacci and regains its composure today. As such, the upside momentum is intact and bulls can push for new record highs towards 2,229, although further gains have a higher degree of difficulty for now.

Gold's trajectory will be shaped by Wednesday's policy decision by the Fed. The updated dot-plot and Chair Powell's press conference will be the main focal points.

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 29 May 2024 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

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