Gold rallied sharply yesterday after the ECB announced its latest stimulus measures aimed at fighting deflation and spurring growth in the eurozone. Though we haven’t seen a follow-through in the buying pressure so far today, this is not a surprise given the upcoming risk event later in afternoon, namely the US jobs report for May.
The yellow metal has been drifting lower ever since the middle of March, partly due to vanishing concerns over inflation as have been clearly reflected in the eurozone data which led to further easing from the ECB on Thursday. Meanwhile stocks and the dollar have both rallied while geopolitical concerns over Ukraine have been put on the backburner; these events further discouraged bullish speculation on the buck-denominated gold prices.
Thus yesterday’s turnaround in the euro, and the dollar’s corresponding sell-off, was at least partially responsible for gold’s rally. In this regard, gold bulls will want the US currency to extend its falls if the metal’s prices were to climb further. This could happen, for example, if the US jobs report, due later this afternoon, disappoints expectations.
The headline nonfarm payrolls number is expected to come in around 215,000, which would be lower than April’s 288,000, while the unemployment rate is expected to have edged higher to 6.4% from 6.3% previously. For gold, any figure above 215 thousand will probably be bad news as it means the Fed would likely continue moving closer to and perhaps even accelerate the end of QE. Thus both stocks and the dollar may rally instead; if so, this could add further pressure on gold prices. However, if the NFP comes in below expectations, specifically, sub-180,000, then gold prices could squeeze further higher. My colleagues Matt Weller and Neal Gilbert have put together a more in-depth preview for the NFP, which you can read HERE.
Technical view
Chart-wise, gold’s bullish engulfing candle on the daily chart, as can be seen below, is somewhat encouraging news for the longs, especially after the metal had drifted in the “oversold” territory on the Relative Strength Index (RSI). However the trend is clearly bearish as pointed out by the downward-sloping trend line and the falling 50 and 200 day moving averages, which recently created a so-called “Death Crossover.” This crossover usually, but not always, precedes major price downswings. Thus it makes sense to assume that rallies could be faded, especially around levels that were formerly support such as $1268 and $1280. Meanwhile a potential break below support at $1240/1 could pave the way for $1227 or $1220 in the near-term. The former is the 78.6% Fibonacci retracement level of the last upswing, while the latter corresponds with the measured move objective of the symmetrical triangle pattern.
Figure 1:
Comments
Post a Comment