GOLD (XAU/USD), USD/CAD KEY POINTS:
- Gold (XAU/USD) Slides as US Home Sales Hit a 1-Year High.
- Canadian Inflation Retreats to 2-Year Lows. Is a 25bps Hike Still on the Table for the Bank of Canada (BoC)?
- Money Markets Still Price in 62% Chance of a 25bp Hike in July from the BoC, Down from 64% Prior to Inflation Release.
- To Learn More About Price Action, Chart Patterns and Moving Averages, Check out the DailyFX Education Section.
Trade Smarter - Sign up for the DailyFX Newsletter
Receive timely and compelling market commentary from the DailyFX team
US HOME SALES, CB CONSUMER CONFIDENCE DATA
US CB Consumer Confidence data smashed estimates with a print of 109.7 likely to see recessionary fears take a backseat for the remainder of the US session at least. The positive consumer confidence data came hot on the heels of a positive showing from both durable goods orders and the house price index, offering the Dollar Index (DXY) some reprieve.
For all market-moving economic releases and events, see the DailyFX Calendar
US housing data remained robust showing no immediate signs of an incoming recession as many have been punting of late. New home sales now at one-year highs with the figure (±12.8%) above the revised April rate of 680,000 and is 20.0% (±15.5%) above the May 2022 estimate of 636,000.
The impact of the positive data has weighed on Gold prices in particular with the precious metal sliding from a session high around $1929 to trade at $1911/oz at the time of writing. The CB Consumer Confidence data may have held a bit more sway today in light of the poor Euro Area data last week as well as dwindling consumer confidence data out of Germany yesterday. This had stoked recessionary fears which had likely kept Gold supported above the $1900/oz mark. Even with the positive data Gold does not seem to have the bearish momentum to break the $1900 psychological level at this stage.
CANADIAN INFLATION DATA AND RATE HIKE EXPECTATIONS
Canadian inflation meanwhile provided a timely boost to the Bank of Canada (BoC) ahead of its July meeting. The YoY inflation rate in Canada fell to 3.4% in May of 2023 from 4.4% in the previous month, the lowest since June 2021 and in line with market expectations. The slowdown was largely attributed to a 2.4% decline in energy prices (vs 1.3% in April), due to an 18.3% plunge in that of gasoline. Also, eased supply chain bottlenecks reduced inflation for durable goods (1% vs 2.2%). As other countries continue to struggle with Core inflation Canada have made inroads there as well with the core inflation rate slowing more than expected to 3.7% YoY with the MoM print dropping to 0.4%.
For all market-moving economic releases and events, see the DailyFX Calendar
Heading into the meeting all eyes were on Canadian inflation not just from the Bank of Canada but other major Central Banks as well. This is partly due to the fact that Canada have had more success than most in moderating inflation even though it remains high. The Bank of Canada (BoC) for its part has a decision on its hand now as the July meeting approaches, with a 25bps hike likely still on the table. Money markets repriced only a smidge in the aftermath of the inflation release with the probability of a 25bps hike dropping to 62% from 64% prior to the release.
TECHNICAL OUTLOOK AND FINAL THOUGHTS
Form a technical perspective, Gold price action has been printing lower highs and lower lows with the 100-day MA remaining a key area of resistance likely to cap any attempted move to the upside. A breach of the $1900 psychological level is needed for downside continuation but may not materialize at present given the uncertainties still in play around markets. As long as recessionary fears remain in play Gold could in theory remain supported as its safe haven appeal grown. A daily candle close below the $1900 level could open up a quick push toward the $1875 handle before the 200-day MA at $1854 comes into focus. For a full breakdown take a read Gold Weekly Forecast: Bearish Breakout May be Limited as Recession Fears Grow.
Gold (XAU/USD) Daily Chart – June 27, 2023
Source: TradingView, Chart Prepared by Zain Vawda
USD/CAD Daily Chart – June 27, 2023
Source: TradingView, Chart Prepared by Zain Vawda
Taking a look at the IG client sentiment data and we can see that retail traders are currently net LONG on USD/CAD with 72%of traders holding long positions (as of this writing). Not surprising at all given that the RSI has just left overbought territory as well hinting at the potential for a short-term bounce. At DailyFX we typically take a contrarian view to crowd sentiment meaning we could see Gold prices continue to decline following a short upside rally. For a full technical breakdown and price action on USD/CAD please click here and read Canadian Dollar Price Action Setups: USD/CAD, CAD/JPY, GBP/CAD Ahead of Inflation Data.
Key Levels to Keep an Eye On:
Support levels:
- 1.3000
- 1.2900
- 1.2750 (August 2022 Swing Low)
Resistance levels:
- 1.3250
- 1.3320
- 1.3440 (50-day MA)
Written by: Zain Vawda, Markets Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
