2. Points To Be Covered Today:
โข US Dollar & Weekโs Calendar
โข The US Dollar Index (DXY)
โข Gold Traders Remain Cautious Ahead
โข Gold Speculative Bulls
โข Gold Traders Remain Cautious Ahead
โข Gold Technical Analysis
โข Gold Fundamental Overview
3. US Dollar & Weekโs Calendar
โข All eyes turn to the US data this week to determine the likely timings
of a taper, or not to taper.
โข The US dollar will depend on this week's calendar in the US and so
too will the price of gold.
โข On the upside, a break of the 1,840s opens risk to $1,870. On the
downside, bears look to clear below $1,769.
4. The US Dollar Index (DXY)
โข Gold (XAU/USD) takes the bids to refresh intraday high around $1,815, up
0.20% on a day, during early Tuesday.
โข After a sluggish start to the day, not to forget downbeat weekly opening, gold
regains upside momentum as the US Dollar Index (DXY) fails to extend the
previous dayโs rebound from a two-week low, down 0.07% intraday around
92.64 at the latest.
โข In addition to the greenback weakness, cautious optimism in the markets and
mildly bid S&P 500 Futures, not to forget a three-day downtrend of the US 10-
year Treasury yields, also favor gold buyers of late.
5. Gold Traders Remain Cautious Ahead
โข Behind the moves could be the recently easing virus numbers from AsiaโPacific,
after refreshing the multi-day tops, as well as Chinaโs downbeat activity numbers
that back the need for easy money policies.
โข However, gold traders remain cautious ahead of Fridayโs US jobs report as Fed
Chair Jerome Powell announced tapering but refrained from details and booster
investor sentiment on Friday.
โข The price of gold is sitting at $1,810 in early Asia following an overnight down day of
some 0.38%.
โข XAG/USD had travelled between a low of $1,807.78 and $1,823.27 highs.
6. US Dollar Remains Subdued
โข The US dollar remains subdued also, following on from a virtual annual Jackson Hole
Symposium 2021 on Friday.
โข DXY, an index that measures the US dollar against a basket of six major rival currencies,
suffered an outside down day on Friday due to a more dovish than expected rhetoric from
the Fed's chairman, Jerome Powell.
โข There was a long build-up to Friday's speech and there was anticipation in the markets for
more clues of the timings of a taper of the Fed's Quantitative Easing.
โข However, nothing new came from the event which resulted in an unwinding of additional
speculative long US dollar positions, at least in the spot market.
โข The main takeaway, which risk assets cheered, came from Powell's explicit
pronouncement of the disconnect from QE tapering and eventual interest rate rises.
7. The Index Is Now On Track
โข Powell stated that โthe timing and pace of the coming reduction in
asset purchases will not be intended to carry a direct signal
regarding the timing of interest rate liftoffโ.
โข As a consequence, the index is now on track to test the August 13
low near 92.471 with a low on Monday scored at 92.598.
โข A break below would set up a test of the July 30 low near 91.782:
9. Gold Speculative Bulls
โข Meanwhile, gold speculative bulls will be positioning for more to go to the
index's downside considering the outcome of the speech and considering how
speculators increased their net long US dollar positions in the prior week.
โข According to calculations by Reuters and US Commodity Futures Trading
Commission data released on Friday, the value of the net long dollar position
jumped to $8.50 billion in the week ended Aug. 24, compared with a net long
of $1.06 billion the previous week.
10. The Nonfarm Payrolls
โข This was the largest long position since March 2020.
โข Meanwhile, the week ahead will be critical in respect to the Fed chair's opinions.
โข The Nonfarm Payrolls will be the highlight.
โข Chair Powell made very clear, again, that while the Fed has probably got to the point
where โsubstantial further progressโ has been made on inflation โwe have much
ground to cover to reach maximum employmentโ.
โข Powell warned in his Jackson Hole speech that an โill-timed policy move
unnecessarily slows hiring and other economic activity and pushes inflation lower
than desiredโ.
โข In an environment of โsubstantialโ labour market slack, this could be โparticularly
harmfulโ.
11. USD To Trade With A Softer Tone
โข ''With Chair Powell taking a less cavalier attitude to taper than some of his
FOMC colleagues, we look for the USD to trade with a softer tone into the
upcoming payrolls report which we expect will disappoint consensus,''
analysts at TD Securities said.
โข ''That said, dips in the dollar should be shallow and well-marked; in the DXY,
we think the post-June Fed 'range' lows near 91.50/00 should be solid
support.''
โข The lead into Friday's jobs data may well also be key.
12. The Outlook Changes
โข Tuesday's Services PMI, ahead of Wednesday's Manufacturing
PMIs as well as the ADP jobs report and then Jobless Claims also
have the potential to stir up volatility before Friday's showdown.
โข ''If the outlook changes and the U.S. economy slows significantly,
then it would be a likely game-changer for the dollar,'' analysts at
Brown Brothers Harriman warned.
13. The Dollar May Hold Up
โข ''The Fed would have no choice but to adjust its expected tapering path
significantly.
โข Yet even then, the dollar may hold up better than expected since a
US recession would likely be part of a broader global downturn.
โข It all goes back to relative performances.''
โข Should the data really disappoint, the DXY could be looking into the abyss
from a longer-term perspective:
15. The US Dollar Would Be Expected To Struggle
Vs The Euro
โข This would especially be true if the European Central Bank and the Fed be seen to
be converging.
โข ECBโs Philip Lane was concrete at the Jackson Hole, basically, promising to
calibrate the QE program to financial conditions BOTH in an upwards and in a
downwards direction.
โข This currently means that the recent new all-time lows seen in EUR real rates could
be used as an argument to tone down PEPP-purchases, potentially as soon as
September.
โข Should such sentiment grab the front pages and be construed as the equivalent of a
taper, the US dollar would be expected to struggle vs the euro, for which makes up
almost 58 per cent (officially 57.6%) of the basket.
17. Gold Technical Analysis - I
โข Technically, the price of gold, while above 1,805, is now in
bullish territory and eyes a run to test the 1,834s.
โข On the upside, a break of the 1,840s opens risk to 1,870.
โข On the downside, gold bears would be in the clear below
1,769.
18. Gold Fundamental Overview
โข Fresh fuel from the Federal Reserve has been making gold shine โ the familiar story
has repeated itself in recent days, allowing the precious metal to feel comfortable
above $1,800. There might be more in store.
โข Fed Chair Jerome Powell refrained from signaling he would announce a tapering of
the bank's $120 billion/month bond-buying scheme in a highly anticipated speech on
Friday. If the world's most powerful central bank keeps increasing the money supply,
some of that goes to gold, goes the thinking.
โข The next significant event awaiting markets is Nonfarm Payrolls on Friday. Until
then, how is XAU/USD positioned on the charts?
