Article by: ETO Markets
The main drivers for currency markets this week came from strong U.S. labor market data and relatively hawkish comments from Federal Reserve Chairman Jerome Powell, which helped the dollar recover further. According to the latest JOLTS job openings report, U.S. job openings unexpectedly increased by 329,000 to 8.04 million in August, beating market expectations. This shows the resilience of the US Labour market and has prompted investors to reassess the chances of the Fed cutting interest rates by another 50 basis points in November. In addition, the ADP employment data also showed that the US private sector added 143,000 jobs in September, higher than the expected 120,000, further strengthening the solid performance of the US economy and supporting the strength of the US dollar.
At the same time, hopes are high that China's massive stimulus measures will boost the recovery of the world's second-largest economy. However, these positive factors have put some pressure on safe-haven assets such as gold, undermining its upside potential. Nonetheless, geopolitical tensions remain a major source of uncertainty for markets.
On Friday, gold gained some upward momentum amid a slight pullback in the dollar, climbing to near $2,668, near its intra-week high. The dollar rebounded this week from its lowest point since July, and despite a pullback after hitting a one-month high on Thursday, its firm performance has kept pressure on gold prices. At the same time, the ongoing tensions in the Middle East, especially the intensifying conflicts between Israel and Iran and Hezbollah in Lebanon, have boosted safe-haven demand and supported gold's appeal as a safe-haven asset.
Nonetheless, the reduced likelihood of a significant rate cut by the Federal Reserve in November limits the downside of the dollar and correspondingly inhibits the upside potential of non-yielding gold. In addition, investors are focused on the upcoming U.S. non-farm payrolls report (NFP), which will give the market more clues on the Fed's future policy path. While the dollar may provide some resistance to gold prices, geopolitical risks and labor market stability could provide further support for gold.
From a technical point of view, the recent range-bound gold price can be seen as a bullish consolidation phase after a strong rally. Momentum indicators on the daily chart remain in positive territory and have eased from overbought conditions, suggesting that bullish sentiment remains dominant. In the short term, the $…-… area may provide immediate resistance, followed by the $…-… area, the all-time high set last week. If this area is breached, gold could further challenge the $… mark and start a new uptrend.
On the other hand, the $…-$… area is the key support level, a break below this support could trigger further technical selling, with targets pointing towards the $… and $… areas. If gold falls further, it could test the $…-… support area and even dip down to the psychological $… level.
Crude oil prices rose more than 1 percent as heightened concerns about Middle East tensions amid an escalating conflict between Israel and Iran boosted safe-haven demand for crude. Earlier, Iran fired ballistic missiles at Israel in retaliation for the ground operation in Lebanon. In addition, despite the unexpected increase in US crude oil inventories, the market did not seem to react significantly to this, with investors paying more attention to developments in the Middle East. Meanwhile, Kazakhstan's announcement that it would cut oil production in October in response to shortages in Libya also gave some support to prices.
Nevertheless, the US Dollar index (DXY) rose for the fourth day in a row, reaching a September high of 101.90, putting some pressure on oil prices. Former New York Fed President William Dudley pointed out that the Fed is now only expected to cut interest rates by 25 basis points, which also supported the strong performance of the dollar.
From a technical point of view, if oil prices continue to gain support factors and break through the current resistance, oil prices could recover to $… (January 12 high). In the process, the 55-day simple moving average (SMA) stands at $…, which could temporarily restrain the rally. Further upside resistance is at $…, in line with the 100-day SMA.
If to the downside, support at $… remains key, and if this support breaks down, the next target will be $… (March and May 2023 lows). If the situation in the Middle East eases or a ceasefire agreement is reached, it could even fall to $….
