Article by: ETO Markets
As Federal Reserve Chair Jerome Powell ruled out a rate drop at the upcoming March meeting, the US dollar gained momentum. Considering that the Fed decided to keep interest rates at their current levels, this result was mostly expected. Chairman Powell underscored the continued high level of inflation and the strong pace of economic expansion, suggesting that rate decreases are not as likely as they once were. The direction of the Federal Reserve's easing cycle and market mood are expected to be significantly impacted by the upcoming jobs and inflation reports.
The manufacturing sector in China appeared to be growing steadily in January, as indicated by the fact that the Caixin Manufacturing Purchasing Managers Index stayed at 50.8. The market anticipated a reading of 50.6. The US dollar's increase was tempered by the further boost to risk sentiment in Asia, which encouraged gold purchasers to take back control. Furthermore, the non-yielding gold price is gaining ground because to the ongoing weakening in US Treasury bond yields across the curve.
Now, all eyes are on Friday's US Nonfarm Payrolls data, which should confirm the Fed's decision to postpone lowering interest rates until May. For new trading momentum in the gold price ahead of time, traders will be examining the US Jobless Claims, Unit Labor Cost, and the ISM Manufacturing PMI data. The market's expectations for the dovish Fed tilt may be reassessed in light of the impending data.
Although a number of factors continue to support the bid tone going into the European session, a positive tone around the US market futures helps to limit the upside for the gold price. Investors are still concerned about the possibility of a military conflict in the Middle East escalating further. Apart from this, the safe-haven XAU/USD pair may continue to receive some support due to mounting fears over China's economy growing more slowly.
The price of gold is still probably biased bullishly, and the immediate significant resistance is seen at the high of the previous day, $…, beyond which the high of Mid-December, $…, will be tried. The $… round number could put bearish pledges to the test further up.
Strong support is still present in the $… area, which is where the 20- and 50-DMAs are hanging out, on the downside. If the latter is accepted, selling interest may increase in anticipation of a challenge of the triangle support at $... There may be a test of the crucial $… barrier if the negative momentum continues.
The weak Chinese Manufacturing PMI report may limit WTI prices' rising potential. China's NBS Manufacturing PMI for January was reported on Wednesday. It was 49.2 instead of 49.0 in December, which was below the 49.2 market consensus. Since China is the world's largest importer of crude oil, the country's manufacturing activity shrank for the fourth consecutive month in January, which puts some selling pressure on WTI prices.
XTI/USD support should be provided by the resistance at $… that is in the rearview mirror. Even though price action was rather close, $… will be difficult to surpass. After $… is broken, the next topside price is $... Any sharp drops will find instant support near the $… mark. Since the $… mark corresponds with a triple bottom from June, it may still serve as the next support level.
