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Gold Shines as the US Economy Slows

With the Federal Reserve (‘the Fed’) having signalled that a cut to the funds rate is unlikely next month, the slight majority of traders now expects a hold on 20 March according to CME FedWatch Tool.

Gold Volatility Ahead of NFP Report

Instability in the Middle East and specifically the USA’s response to attacks on its troops in Jordan has moved out of traders’ view temporarily but remains likely to have some effect on sentiment into next week. The critical release affecting gold today, 2 February, is the job report for January. The figure for total nonfarm is expected to decline around 40,000 to 180,000 while unemployment might edge up to 3.8%. Whatever the result, volatility for gold is likely to increase further around the release at 13.30 GMT.

The overall uptrend still seems to be active, with momentum on 1 February having increased and the price pushing clearly above resistance around $2,050. Whether it holds there in the near future depends mainly on the result of the NFP and traders’ reactions to it. However, on the whole the technical picture has become more positive in recent days.

Buyers appeared to overcome selling pressure as shown by the large upward real body on Thursday coming after two fairly long wicks. Meanwhile the price remains above all of the 20, 50, 100 and 200 SMAs. The movement on 1 February could be interpreted as an upward breakout from a symmetrical triangle, signalling further gains, but a strong result from the NFP could easily drive the price back down.

Cable, Daily

The pound sterling has been flat overall against the dollar since December 2023 with relatively low volatility. As widely expected, the Bank of England (‘the BoE’) held its rate on 1 February and hinted that it sees further hikes as unnecessary unless inflation starts rising significantly again. For now, it’s probably still too early to make a very educated guess on how long or even whether the BoE’s rate will be higher than the Fed’s this summer.

Overall, the American economy certainly seems to be performing better than the UK’s in terms of GDP and employment. Apart from the NFP, traders are looking ahead eagerly this month to American inflation and British preliminary GDP for last quarter on 15 February. If the latter’s negative, the UK is likely in recession.

As for gold above, the NFP is the critical release for cable this week. Here, though, the potential for a decisive movement seems to be less. The current $1.27 is the same area as late November’s high and generally one wouldn’t expect a major forex pair to sustain a directional trend for a long time. The base case around the job report seems to be movement towards the top of the channel around $1.282 or the bottom near $1.262 depending on the result.

The opinions in this article are personal to the author. They do not represent the opinions of Exness.

This article was originally posted on FX Empire

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