Breakout Fails to Kick on as Technicals Flash Mixed Signals

GOLD PRICE, CHARTS AND ANALYSIS:

GOLD FORECAST: NEUTRAL

• Gold on Course for its Strongest Week in Around 3 Months.
• Lack of High Impact US Data and Fed Blackout Period Could Add Further Pressure on the Dollar and Keep Gold Bulls in Control.
• Technical Picture Mixed as Weekly and Daily Timeframes Flashing Mixed Signals.
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READ MORE: USD/CAD Forecast: 1.3000 Beckons as Dollar Index (DXY) Slide Continues

THE WEEK IN REVIEW

Gold finally broke the range which had kept bulls at bay for the last two weeks below the $1940 handle. The selloff in the Dollar Index which was sparked by the softer CPI data out of the US has seen market participants grow optimistic about the possibility that the Fed will reach their peak rate at the July 26 FOMC meeting. Gold is on course for its strongest week in the past 3 months.

US 2Y And 10Y Yields

Source: TradingView, Created by Zain Vawda

The DXY and falling Treasury Yields obviously driving the move and looking at the gains posted by the EURO and the GBP against the Greenback I did expect a bit of a larger move following the breakout with the $1980 level looking appealing. However, the precious metal has struggled to rise past the $1960 resistance area which has largely capped any attempts at further gains. Friday also saw Treasury yields attempt a recovery as the 2Y in particular rose back toward the 4.75% mark from a low of 4.6% and could explain the poor performance by Gold on Friday to end the week. Let’s take a look at the week ahead has in store for gold prices.

US RETAIL SALES, BUILDING PERMITS, CHINA GDP AND FED BLACKOUT PERIOD

Heading into next week and I do believe that Gold could be in for further gains as the macro picture does not look appealing for the US Dollar and DXY. The only high impact data in the week ahead will be in the form of US Retail Sales and Building Permits which are hardly major market moving events. This I expect could see the DXY continue its trend to the downside with any attempted upside rally likely to be met with selling pressure. This in turn could further embolden Gold bulls and push the precious metal closer to the $2000 mark.

Market pricing for the Federal Reserve meeting in July remains largely unchanged with markets still expecting a 25bps hike. However, the main reason for the USD selloff is that market participants believe the Feds hiking cycle will be done after a July hike which following the inflation may not be way off base. The Fed have entered the ‘Blackout Period’ meaning the Dollar is unlikely to receive any boost from Fed policymakers in the weekend a half before the FOMC meeting on July 26.

Early in the week we also have Chinese GDP data which could also have a bearing on Gold prices as the Asian nation have seen a stuttering economic recovery continue with poor import and export data this past week. China remains one of the largest importers of gold worldwide and a poor GDP number may stoke fears that demand may wane. There has been rumors of a potential stimulus from the Chinese Government and that could be a blessing for Gold and could provide another boost for the precious metal.

Here are the three high ‘rated’ risk events for the week ahead on the economic calendar which could affect Gold prices and lead to a spike in volatility:

For all market-moving economic releases and events, see the DailyFX Calendar

TECHNICAL OUTLOOK AND FINAL THOUGHTS

The weekly chart for XAUUSD has printed a Morningstar candlestick pattern if you will with Gold on course for its strongest week in 3 months. Now we can’t say there was no sign from a technical perspective as following on from last weeks close, we did get a golden cross pattern as the 50-day MA crossed above the 100-day MA hinting at further upside.

XAU/USD Weekly Chart – July 14, 2023

Source: TradingView

Dropping down to a daily timeframe and interestingly enough we are seeing a death cross pattern in a complete contradiction of the weekly. This in part could also explain the failure by Gold bulls to fully capitalize on the slide in the DXY this week. Friday’s daily candle is on course for a doji close (at the time writing) which could be a sign of some early week pullback with the first area of support around the 50 and 100-day MAs at $1954/oz. A break lower here and we could be in for a retest of the of the bull flag breakout area around the $1935-$1940 area.

Given the mixed signals on the weekly and daily charts a break higher from here will have the resistance area around the $1980 mark (highlighted in pink on the chart) to navigate before the coveted $2000 handle comes into focus.

XAU/USD Daily Chart – June 14, 2023

Source: TradingView

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda