• Gold price is declining sharply on advancing hawkish Fed bets.
• Measures to contain inflationary pressures will absorb liquidity from the economy.
• Investors will keep an eye on the release of the ISM Manufacturing PMI.

Gold price (XAU/USD) has given a downside break from its previous consolidation formed in a $1,846.20-1,864.16 range in the New York session. The precious metal has turned extremely volatile as investors are bracing for a rise in the extent of the hawkish stance to be dictated by the Federal Reserve (Fed) in June.

Mounting inflationary pressures in the US economy have created havoc for the Fed and the US administration. To discuss the same, US President Joe Biden and Fed chair Jerome Powell conducted a meeting on Tuesday to discuss measures that could contain the soaring inflation. No matter what kind of measures the Fed will take to tame the price pressures, one thing is for sure the liquidity absorption program will get tightened further and the gold prices will remain on the tenterhooks.

Meanwhile, the US dollar index (DXY) is consolidating above 101.70 and is likely to witness an initiative buying action after a pullback. In today’s session, investors will focus on the ISM Manufacturing PMI, which is seen lower at 54.5 against the prior print of 55.4.

Gold technical analysis

A downside break of the Symmetrical Triangle on the hourly scale resulted in a volatility expansion that dragged the gold prices significantly lower. The breakdown of the precious metal will find a cushion at around $1,820.00. Declining 20- and 50-period Exponential Moving Averages (EMAs) at $1,846.00 and $1,850.00 are hinting at more downside. Along with this, the Relative Strength Index (RSI) (14) has shifted into a bearish range of 20.00-40.00, which adds to the downside filters.

Gold hourly chart

• The EUR/JPY moderately climbs some 0.07% as the Asin Pacific session begins.
• Sentiment remains negative, though the JPY weakened as other global central banks began tightening monetary conditions.
• EUR/JPY Price Forecast: To accelerate towards 140.00, once EUR/JPY bulls reclaim 139.00.

The EUR/JPY extends its rally for the fourth consecutive trading day due to a weaker Japanese yen, the weakest currency of Tuesday’s trading session in the FX complex. At 138.13, the EUR/JPY aims higher, and bulls have set their target around May 9 daily high at 138.32.

Sentiment remains negative, fundamentally for no reason than broad US dollar strength, courtesy of month-end flows. US equities closed with losses between 0.31% and 1.35%. China’s reported positive news related to May’s Covid-19 outbreak as Beijing and Shanghai prepares to lift some restrictions.

Of late, the EU Commission agreed to Russia’s oil embargo. Earlier, in the European session, inflation in the Euro area skyrocketed towards 8.1% YoY, higher than the 7.7% estimation

EUR/JPY Tuesday’s price action showed that the cross-currency dipped towards 136.80 daily lows, below the daily pivot point at 137.11, on pure JPY strength. Nevertheless, as Europan traders got to their desks, the EUR/JPY shifted gears and rallied more than 130 pips, reaching a daily high at 138.23, returning to current prices.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY remains upward biased and poised for a break of the May 9 138.31 cycle high. However, the cross-currency would face a wall of resistance levels on its way north. Nonetheless,  the Relative Strength Index (RSI) is above the 50-midline in the bullish territory and has enough room to spare before reaching overbought conditions.

Therefore, the EUR/JPY first supply zone would be May 9 high at 138.31. Break above would expose April’s 25 daily high at 139.20, followed by April’s 22 cycle high at 139.48. Once cleared, the EUR/JPY could rally towards April’s 21 YTD high at 140.00.

Key Technical Levels

• The Australian dollar slides from weekly highs above 0.7200 amidst a sour trading day.
• Sentiment shifted negatively as month-end flows boosted the greenback, and US Treasury yields rose.
• AUD/USD Price Forecast: A daily close below 0.7200 to open the door for further losses.

AUD/USD slumps in the North American session, dropping from weekly highs above 0.7200, spurred by a risk-off market mood, on May’s last trading day. At 0.7178, the AUD/USD reflects the greenback’s strength, benefitted by month-end flows and higher US Treasury yields.

US equities remain trading with losses, between 0.46% and 1.80%. Sentiment shifted sour as the Eurozone reported inflation for May, which increased by 8.1% YoY, higher than the 7.8% foreseen, triggering worries about elevated prices and a global stagflation scenario.

In the Asian session, positive news from China showed that May PMIs came better than expected. The Manufacturing PMI printed a solid 49.6, higher than the 49.0 expected. The Non-Manufacturing PMI index rose by 47.8 vs. 45.5 estimations. The previously mentioned, alongside some restrictions lifted in Beijing and Shanghai, paint a hopeful scenario for the second-largest economy and Australia’s largest trading partner.

Chinese data boosted the AUD/USD, which was suffering under some selling pressure, though in the end, it failed to cling to the 0.7200 mark.

On Monday, Fed’s Governor Christopher Waller said he wants to keep hiking rates in 50 bps size until inflation is moving back towards the 2% target. Specifically, he said, “I support tightening policy by another 50 bps for several meetings. In particular, I am not taking 50 bps hikes off the table until I see inflation coming down closer to our 2% target.”

In the day ahead, the Australian economic docket would feature the GDP for Q1. Along with China’s Caixin Manufacturing PMI for May, that data could influence the AUD/USD direction. On the US front, the US economic calendar would feature the US ISM Manufacturing and Non-Manufacturing PMIs, US employment data, led by the Nonfarm Payrolls, and the ADP and JOLTs openings report.

AUD/USD Price Forecast: Technical outlook

The AUD/USD daily chart depicts the pair as neutral-downward biased. Above the 0.7200 mark, AUD/USD buyers would face a firm supply area in the 0.7229-56 region, the confluence of the 50, 100, and the 200-day moving averages (DMAs), a reason for the pair’s dip below 0.7200, as AUD/USD bears stepped in.

If the AUD/USD records a daily close below the 0.7200 mark, that will open the door for further weakness. That said, the AUD/USD first support would be the May 30 low at 0.7152. Once that hurdle cleared, the AUD/USD would tumble towards 0.7100, followed by the 50-day moving average (DMA) at 0.7050.

On the other hand, the AUD/USD first resistance would be 0.7200. A breach of the latter would expose the major to the 0.7229.56 area, the confluence of the above-mentioned DMAs.

• Gold is on the verge of a test of critical daily support, resisted at a weekly 38.2% Fibonacci. 
• Forthcoming events on the Us economic calendar will be key. 

At $1,839.80, the gold price is down by some 0.85% on the day as the US dollar attempts to correct from the lowest levels since the last trading week of  April. Gold prices are headed for a second consecutive month of declines as rising US Treasury yields discourage investors from the non-yeilding asset, despite concerns over surging inflation.

The 10-year yield is currently trading near 2.82%, up from last week’s low near 2.70% but still well below the May 9 peak near 3.20%.  Elsewhere, the 2-year yield is trading near 2.54%, up from last week’s low near 2.44% but still well below the May 4 peak near 2.85%. US gold futures (GCv1) settled down 0.5% at $1,848.4 and the spot gold price is following in tow. 

Investors’ nerves were shaken up by the US Federal Reserve Governor Christopher Waller who on Monday advocated for the central bank to raise interest rates at every meeting until inflation is curbed. Specifically, Waller said “I support tightening policy by another 50 bp for several meetings. In particular, I am not taking 50 bp hikes off the table until I see inflation coming down closer to our 2% target.”    

This has left markets with the expectation of further rate increases in the forthcoming months. Analysts at Brown Brothers Harriman explained that WIRP suggests 50 bp is fully priced in for June and July.  ”However, a third 50 bp that was fully priced in for September is now about 50% priced in vs. 35% last week.  After September, two more 25 bp hikes are fully priced in and a third is partially priced in that would take the Fed Funds ceiling to between 3.0-3.25%.”

 What’s really changed is that rates are seen peaking in mid-2023 before falling in H2 23 and beyond, the analysts added. ”This would only happen if the US were to fall into recession next year and while it is possible, it is not our base case.  This week’s data will be very important for near-term market expectations.”

The US Nonfarm Payrolls is critical at the last trading of this week, but before then, ahead of the jobs report, important survey data will be reported.  Chicago PMI will be reported today and is expected at 55.1 vs. 56.4 in April.  The regional Fed manufacturing surveys wrap up with Dallas today, which is expected at 1.5 vs. 1.1 in April.  May ISM manufacturing PMI will be reported tomorrow and is expected at 54.5 vs. 55.4 in April. 

In the immediate future, US President Joe Biden said he and Jerome Powell will discuss inflation in a White House meeting Tuesday, and pledged to give the Federal Reserve chair space to do his job.

• Biden and Powell to discuss inflation, US dollar on a knife’s edge

The outcome of the meeting will be important for the gold price. While gold is viewed as a hedge against inflation, rising US interest rates increase the opportunity cost of holding non-yielding bullion and boost the dollar in which gold is priced.

”The world is chasing the same narrative: quantitative tightening is going to sap liquidity at a fast clip, while the Fed hikes into a slowing growth profile in a grand battle against inflation,” analysts at TD Securities argued, ”and yet,” they said, ”consensus positioning in gold remains to the long-side, keeping precious metals prices resilient.”

Gold technical analysis

The gold price is meeting resistance n the weekly chart at a key 38.2% Fibonacci retracement level as follows:

However, from a daily perspective, the price is forming an M-formation while on the way to completing the test of the neckline of the prior W-formation. 

Gold, daily chart

This makes for prospects of some meanwhile consolidation in the days ahead, with the price potentially trapped between the two opposing necklines acting as support and resistance.