Article by: ETO Markets
Us second-quarter gross domestic product (GDP) data, the focus of the market this week, is expected to improve to 2.8% from a preliminary reading of 1.4%. If the data meets or exceeds expectations, it will indicate strong growth in the US economy and could provide some support for the dollar. However, despite the likely strong GDP figures, the market's focus remains on the Fed's policy outlook. Meanwhile, data on the U.S. labor market is also in focus. Initial jobless claims for the week ending August 24 are expected to be unchanged at 232K. Continued weakness in the labor market would increase expectations for a more aggressive rate cut at the Fed's September meeting, which could weaken the dollar while safe-haven assets such as gold could benefit.
In addition, the core personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, is expected to rise to 2.7% year-on-year, up from 2.6% previously. This data is crucial for assessing inflation pressures and the Fed's future monetary policy path. A higher-than-expected inflation number could dent market expectations for a big rate cut, which in turn would boost the dollar. The August non-farm payrolls report will be closely watched. The data will give markets further clues to assess whether the Federal Reserve will take more aggressive steps to cut interest rates at its September meeting.
Gold prices (XAU/USD) eased in early Asian trade on Friday, mainly on the back of strong US economic growth and jobless claims data, which pushed back market expectations of a September Fed rate cut, putting some pressure on gold prices. However, with heightened geopolitical tensions, particularly in the Middle East and the Russia-Ukraine conflict, safe-haven demand could still provide support for gold.
Investors' attention will be focused on the upcoming release of the U.S. core personal consumption expenditures (PCE) price index, the Fed's preferred tool for gauging inflation. If the PCE data is lower than expected, it may strengthen the market's confidence in the Fed to start the rate cut cycle, which will be positive for gold prices.
From a technical point of view, although gold prices fell slightly during the day, the overall trend remains bullish. Gold is currently fluctuating within a five-month uptrend channel and has not broken through the resistance levels of the upper channel boundary and all-time highs, indicating that there is some upside in the short term. The key resistance is near $… at the intersection of the all-time high and the upper boundary of the trend channel, a break above which could see further gains to the psychological level of $…. On the downside, if gold breaks below the initial support level of $…, it could test further to $… (August 15 low) or even $… (100-day EMA).
Oil prices rebounded after a two-day 3.60 percent correction, buoyed by upbeat economic data from the United States and lower oil exports from Iraq. Iraq's oil minister confirmed that the country's crude oil exports averaged 3.485 million barrels per day in July, in line with previous production cuts agreed with OPEC. The news shows the extent to which OPEC members are complying with production controls, which could be supportive for oil prices.
At the same time, stronger-than-expected second-quarter GDP data in the United States showed the strength of the economy, further boosting market sentiment. However, the US Energy Information Administration (EIA) reported a much smaller drawdown in crude inventories than expected, which could limit the upside for oil prices. In addition, Ukraine's attacks on strategic oil depots and artillery depots in Russia's Rostov and Voronezh regions have further increased geopolitical risks in the market.
From a technical point of view, oil prices are trying to stabilize after a two-day correction, but downside risks remain. Oil prices are currently between key support and resistance levels, failing to break through any important technical resistance levels, indicating that the market's bullish sentiment is fragile in the short term. On the upside, the double resistance level of $… coincides with the downtrend line and the 200-day simple moving average (SMA), and if oil breaks above this level, the 100-day SMA near $… could again form resistance. On the downside, the August 5 low of $… was the first support level. If oil falls below this level, it could further test the $… mark, followed by key support levels of $… and $…, which are also the lowest points of the triple bottom formed in June 2023.
