US PMI, GOLD AND DOLLAR INDEX KEY POINTS:
- Gold (XAUUSD) with a Moderate Bounce Today, Still Struggling as it Remains at the Mercy of Dollar Strength.
- Market Sentiment, Dollar Index and the US Debt Ceiling Will be Key for Price Action for the Rest of the Week.
- US Output Growth Hits 13-Month High in May but as with the Euro Area Manufacturing Remains an Area of Concern Dipping into Contractionary Territory.
- To Learn More About Price Action, Chart Patterns and Moving Averages, Check out the DailyFX Education Section.
The headline S&P Global Flash US PMI Composite Output Index registered 54.5 in May, up from 53.4 in April, to signal a solid and faster expansion in private sector business activity. Total new orders rose for the third month running in May, with the rate of increase quickening to the steepest for a year.
At 55.1, the S&P Global Flash US Services Business Activity Index signaled a strong expansion in service sector output midway through the second quarter. The rate of growth in activity was the fastest for just over a year, with firms linking the upturn to greater demand from new and existing clients. The service sector growth may support recent rhetoric by the Fed as today’s data indicate a strong demand for services which may keep inflation elevated heading towardQ3 of 2023.
For all market-moving economic releases and events, see the DailyFX Calendar
DOLLAR INDEX FUNDAMENTAL BACKDROP
The Dollar Index (DXY) continues to be supported by the lack of resolution regarding the US debt ceiling. Federal Reserve policymakers have also come out swinging over the last week in a bid to debunk market expectations regarding rate cuts in 2023. We continue to see constant changes in the probability for rate cuts despite Federal Reserve policymakers ongoing rhetoric that such bets are misplaced. The Fed’s Bullard stated yesterday that the Fed will need to go higher on the policy rate, touting for 50bps of hikes moving forward.
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Regarding the debt ceiling we have seen an article released by the Washington Post a short while ago stating that the US Treasury Department has asked agencies if payments can be made later. According to the article senior aides to President Biden are looking at ways to conserve cash as negotiations rumble on. The key question is does this mean Democrats see a chance that negotiations may not be complete before the June 1 deadline?
READ MORE: Debt Ceiling Blues, Part 79. What Happens if the US Defaults?
Gold prices have continued to struggle since surrendering the $2000 psychological mark thanks to the DXY resurgence. Any attempt by bulls have been in vain of late with the exception of the Friday spike which was facilitated by news that US debt ceiling GOP negotiators had walked out. This was a clear sign as to how much sway the Debt Ceiling negotiations continues to have on the US Dollar and thus any dollar impacted instruments.
The US calendar for the rest of the week is quite busy with a host of Fed Speakers coupled with some key data releases. Whether or not any of these releases will have an impact to rival the debt ceiling negotiations remain doubtful. I think the Core PCE data on Friday could have the biggest impact while the Fed minutes is not expected to reveal any material changes to the Feds stance or policy moving forward.
For all market-moving economic releases and events, see the DailyFX Calendar
GOLD (XAU/USD) TECHNICAL OUTLOOK
Form a technical perspective, Gold price action has been overshadowed of late by the DXY and the continued debt ceiling negotiations. Gold caught a bounce this afternoon which came as a surprise given largely positive US PMI data.
Looking at the daily however the $1950 handle continues to provide support and todays daily candle close may see a double bottom pattern come into play. This would hint that gold prices could be in for the next leg of the rally toward $2000 and beyond. A push higher from current prices needs to contend with resistance around the $1982 mark before the $2000 comes into focus. The 50-day MA at $1990 may see a pause and could hamper any potential retest of the $2000 handle.
Alternatively, continued downside requires a daily close below the $1950 mark before eyeing any further downside move. Below the $1950 mark we have the 100-day MA resting around the $1930 mark.
Gold (XAU/USD) Daily Chart – May 23, 2023
Source: TradingView, Chart Prepared by Zain Vawda
Written by: Zain Vawda, Markets Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
