- The gold price is correcting towards an hourly W-formation's support structure.
- Bulls are starting to move in the following break of the 38.2% Fibo.
At $1,853, the gold price has stuck to a tight range on Wednesday despite some higher volatility in the forex space during the US session. Bulls have been trying to move in on-resistance but are being pushed back by a rally in US yields and the US dollar. Consequently, gold is pulling back on the hourly chart into a potential support area close to a 50% retracement of Wednesday's hourly rally from $1,844.59 lows.
The US 10-year auction hit a high yield of 3.03% on Wednesday, up from the 2.943% high in the previous auction. We have seen a subsequent rally in US yields and the 10-year now stands 1.54% higher on the day, supporting the greenback, and weighing on US stocks and gold in a familiar synergy between the asset classes as the comparative daily chart illustrates below:
Meanwhile, traders will look ahead to key macro events later this week. These will include the European Central Bank tomorrow, Thursday, and US inflation data Friday.
''Core prices likely stayed strong in May, with the series registering a second consecutive 0.5% MoM increase. A drag on inflation recently, we now expect used vehicle prices to be a contributor, advancing for the first time in four months,'' analysts at TD Securities explained. ''We also look for continued momentum in airfares and shelter inflation. Our m/m forecasts imply 8.4%/5.9% YoY for total/core prices.''
As for the ECB, the analysts said unless the governor, Christine Lagarde, ''commits to a series of 50s, EUR/USD has limited room to gain, particularly with the Euribor curve trading where it is and US CPI due the next day. Risk/reward more favorable for EURUSD to trade lower. Long-term inflation forecast will be key.''
In turn, this could keep the US dollar elevated into the US inflation data on Friday and hold the yellow metal back within familiar sideways ranges. However, much will depend on the tone of the ECB. The analysts at TDS also argued that the ECB will ''announce that the APP will end within weeks, and send a strong signal that rate hikes are coming in July and September (October remains a more interesting meeting in this sense). Forecasts will show stronger inflation and weaker growth, highlighting the ECB's challenge going forward.''
Consequently gold could be attractive for its haven qualities. The weakening economic backdrop has enabled the precious metal to find some support from investors. The precious metal has recently pushed above $1,850, despite a stronger USD.
Gold technical analysis
The price is correcting towards the W-formation's support structures and through the Fibonacci retracement scale. Bulls are starting to move in following a break of the 38.2% Fibo but there is still some way to go until the bullish impulse's price imbalance from near the 50% mean reversion level is mitigated. This leaves prospects of a deeper correction, potentially as far as the 61.8% Fibo.