XAUUSD is getting closer to $2060

The price of gold is back in positive territory, heading to retest the two-week high of $2,056 set on Wednesday. The US Dollar is losing momentum amid a renewed appetite for risk, as markets applaud China's fiscal support while assessing the interest rate outlook of the United States Federal Reserve. China's Vice Finance Minister, Wang Dongwei, announced on Thursday that they "will appropriately increase investment under the central government budget," which "will help expand domestic demand." This comes after China's Caixin Manufacturing Purchasing Managers Index (PMI) remained at 50.8 in January, suggesting steady growth in the country's manufacturing sector. US Treasury bond yields declined on Wednesday, dragging the US Dollar down, following the ADP Employment Change data coming in below estimates at 107,000, and the Treasury Department's quarterly announcement that it would sell $121 billion in notes and bonds next week, up from $112 billion last quarter. However, a relatively hawkish tone from the Fed, following its two-day policy meeting, failed to offer any relief to US Treasury bond yields, while the US Dollar rose on the Fed's resistance to a rate cut in March. The US central bank extended the pause, as Fed Chair Jerome Powell said, "based on the meeting today, I don't think it's likely we will have a rate cut in March." Currently, markets are pricing in a 35% probability that the Fed will cut rates in March, while for May, the odds stand at 92%. All eyes now turn toward Friday's US Nonfarm Payrolls data to confirm the resistance to a rate cut by the Fed until May. Ahead of that, traders will look to US Jobless Claims, Unit Labor Cost (Q4), and ISM Manufacturing PMI data for fresh trading impetus in the gold price. The upcoming data could help reprice the market's expectations for the dovish Fed pivot. Gold, after breaking through a supply zone at the $2,033 level, continued its ascent to the liquidity zone at the $2,060 level. Now, I expect a bounce in the new demand zone before continuing the rally towards $2,060, a level increasingly in focus after the Fed. Greetings and happy trading to all.

Comment:

The price of gold (XAU/USD) experienced a significant decline following the release of positive employment data in the United States for January by the Bureau of Labor Statistics (BLS). U.S. employers hired 353,000 new workers, surpassing expectations, and the unemployment rate remained steady at 3.7%. Prospects for inflation have increased due to a faster growth in Average Hourly Earnings than anticipated. Monthly Average Hourly Earnings and annual wage growth exceeded estimates, reaching 0.6% and 4.5%, respectively.

These positive data are expected to lead the Federal Reserve (Fed) to maintain higher interest rates for a more extended period. However, the price of gold is under pressure due to robust wage growth in the United States, coupled with a strengthening dollar.

The NFP report revealed robust labor demand and higher-than-expected wage growth, raising concerns about persistent price pressures. Traders now see a 57% probability of a rate cut in May, down from the employment data release. Expectations for the first rate cut have shifted from March to May.

Fed Chair Jerome Powell stated that an accommodative decision in March is unlikely, as the central bank is not confident that inflation will reach the 2% target by then. Positive economic indicators, such as consumer spending and improved factory data, have cast doubts on price stability. The latest ISM data showed an increase in the Manufacturing PMI, suggesting an improvement in demand.

Comment:

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