Gold prices bounced back from the lowest levels in more than 2 months as the US Dollar weakened from its highs, while concerns over negotiating the US debt ceiling have unnerved market participants and revived safe-haven demand. On Tuesday, the US Dollar index fell back from 2-month highs and posted a modest -0.06% loss. XAUUSD rose 0.8% to $1,958.08 after hitting its lowest level since March 17.
Meanwhile the 10-year yield fell to 3.73% to kick off the short holiday week, after touching 3.85% the previous week, on hopes that Congress will pass a debt deal. Yields on bonds with lower maturities carry higher default risk, extending losses from recent highs, with 4-week bills falling to just under 5.5%. Meanwhile, traders are also awaiting key economic data due this week including ADP, JOLTS, ISM Manufacturing PMI and NFP.
US President Joe Biden said on Monday he was excited by the prospect of passing a debt ceiling deal by Congress, but a handful of far-right Republican lawmakers said they would oppose a deal, highlighting the risks before the cap is reached in days.
However, the correction experienced by the US Dollar may be limited amid increasing speculation of a 25 bps interest rate hike by the Fed in June, supported by strong US economic data and hawkish interest rate prospects by Fed officials in recent days. The market price for a 25 bps June Fed rate hike is now at 57%, down slightly from the 62% seen Monday, but much higher than the 15% probability seen just a week ago.
Technical Review
XAUUSD, H4
Stuck at 50 EMA in yesterday’s trading. The movement above $1,965.14 is projected to test the resistance at $1,985.16. As long as the resistance at $1,965.14 holds out, some consolidation will take place and recent lows could be retested. A move below the low of $1,931.97 would have implications for continuing the corrective wave $2,079.28 to $1,920.00 and $1,900.00.
The RSI is above the 55 expansion level and a positive divergence in the MACD fosters hope for the bulls.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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