Gold Price Analysis: XAU/USD May Rise with Retail Trader Short Bets Ahead of NFPs

Gold prices climbed in relatively quiet day ahead of key NFP data The dovish Fed consensus may keep upside XAU/USD bias for now Retail trader sentiment data hints the yellow metal may rise next

Anti-fiat gold pricesaimed cautiously higher over the past 24 hours in what was a fairly quiet trading session for the yellow metal.

XAU/USD capitalized on a weaker US Dollar and still-pressured Treasury yields ahead of this week’s highly-anticipated non-farm payrolls report.

Philadelphia Fed President Patrick Harker noted that it could be appropriate to slowly and carefully scale back on bond purchases at an ideal time. But, the central bank has shown persistent patience about tapering, arguing that near-term inflation forces are transitory. Delta Fed President Robert Kaplan is slated to speak over the remaining 24 hours. He has been expressing views about tapering policy sooner than anticipated. However, he is a non-voter on the board this year. The markets may shrug off his outlook.

Rather, XAU/USD could continue trading quietly until the NFP report crosses the wires on Friday. Markets will likely be placing more emphasis on the outcome in wage data. A beat on that front could bring forward tapering bets, placing gold at risk. But in the interim, still-dovish commentary could keep XAU/USD afloat.

GOLD TECHNICAL ANALYSIS

XAU/USD is attempting to make further upside progress towards the 61.8% Fibonacci retracement at 1923.01 on the daily chart below. Keep a close eye on RSI, negative divergence may emerge. That is a sign of fading momentum which can at times precede a turn lower.

This would likely place the focus on rising support from March.

XAU/USD DAILY CHART

GOLD SENTIMENT ANALYSIS

Client Sentiment shows that about 74% of retail traders are net-long gold. Downside exposure has increased by 11.77% and 5.50% compared to yesterday and last week respectively. The fact traders are net-long suggests that prices may fall. But, recent changes in sentiment hint that upside momentum may continue.

The CPI and Forex: How CPI Data Affects Currency Prices WHAT IS CPI AND WHY DOES IT MATTER TO FOREX TRADERS?

The Consumer Price Index, better known by the acronym CPI, is an important economic indicator released on a regular basis by major economies to give a timely glimpse into current growth and inflation levels.

Inflation tracked through CPI looks specifically at purchasing power and the rise of prices of goods and services in an economy, which can be used to influence a nation’s monetary policy.

CPI is calculated by averaging price changes for each item in a predetermined basket of consumer goods, including food, energy, and also services such as medical care.

It is a useful indicator for forex traders due to its aforementioned effect on monetary policy and, in turn, interest rates, which have a direct impact on currency strength. The full utility of knowing how to interpret CPI as a forex trader will be explored below

CPI RELEASE DATES

CPI release dates usually occur every month, but in some countries, such as New Zealand and Australia, quarterly. Some nations also offer yearly results, such as Germany’s index. The US Bureau of Labor Statistics has reported the CPI monthly since 1913.

The following table shows a selection of major economies and information about their CPI releases.

CPI RELEASE DATES

WHY FOREX TRADERS SHOULD FOLLOW CPI DATA

Understanding CPI data is important to forex traders because it is a strong measure of inflation, which in turn has a significant influence on central bank monetary policy.

So how does CPI affect the economy? Often, higher inflation will translate to higher benchmark interest rates being set by policymakers, to help dampen the economy and subdue the inflationary trend. In turn, the higher a country’s interest rate, the more likely its currency will strengthen. Conversely, countries with lower interest rates often mean weaker currencies.

The release and revision of CPI figures can produce swings in a currency’s value against other currencies, meaning potentially favorable volatility from which skilled traders can benefit.

Also, CPI data is often recognized as a useful gauge of the effectiveness of the economic policy of governments in response to the condition of their domestic economy, a factor that forex traders can consider when assessing the likelihood of currency movements.

The CPI can also be used in conjunction with other indicators, such as the Producer Price Index, for forex traders to get a clearer picture of inflationary pressures.

WHAT TO CONSIDER WHEN TRADING FOREX AGAINST CPI DATA

When using CPI data to influence forex trading decisions, traders should consider the market expectations for inflation and what is likely to happen to the currency if these expectations are met, or if they are missed.

Similar to any major release, it may be beneficial to avoid having an open position immediately before. Traders might consider waiting for several minutes after the release before looking for possible trades, since forex spreads could widen significantly right before and after the report.

Below is a chart displaying the monthly inflation rates for the US. For the latest month, expectations are set at 1.6% inflation compared to last year’s data. If CPI is released higher or lower than expectations this news event does have the ability to influence the market.

Chart to show US inflation levels in 2018/19. Source: TradingEconomics.com. US Bureau of Labor Statistics

One way the effects of CPI data can be interpreted is by monitoring the US Dollar Index, a 2018/19 example chart for which is below. If CPI is released away from expectations, it is reasonable to believe this may be the catalyst to drive the Index to fresh highs, or to rebound from resistance.

Since the Index is comprised of EUR/USD, USD/JPY, and GBP/USD, by watching the US Dollar we can get a full interpretation of the events outcome.

As can be observed in the example above, as inflation rose during the first half of 2018, the US Dollar Index went up accordingly. But with US inflation drifting lower in the following months and with a missed target of 2%, this pushed US interest rate hikes off the agenda. As a result, the dollar struggled and weakened against a basket of other currencies.

Not every fundamental news release works out through price as expected.

Once the CPI data has been released and analyzed, traders should then look to see if the market price is moving through or rebounding off any areas of technical importance. This will help traders understand the short-term strength of the move and/or the strength of technical support or resistance levels, and help them make more informed trading decisions.

READ MORE ON CPI, INFLATION AND FOREX

Make sure you bookmark our economic calendar to stay tuned in to the latest CPI data released by a range of countries, and stay abreast of all the DailyFX news and analysis updates. Also, reserve your place at our Central Bank Weekly webinar series to learn about news events, market reactions, and macro trends.

Natural Gas Forecast: Key Trendline in Focus as Strong Exports Provide Support

Natural gas price supported by strong LNG export figures Weather, weekly EIA report seen as short-term price drivers September trendline in focus after second weekly price gain

CNatural gas is on track to record a second weekly gain following bullish export figures from the US Energy Information Administration (EIA). US cross-border sales of liquefied natural gas (LNG) – the most common medium for transporting the commodity overseas — hit a record high in March, according to data released by the EIA last week. March’s export figure was recorded at 317,678 million cubic feet (mcf).

The new record high comes after years of export growth in the heating gas, and that trend is expected to continue. However, per the last EIA short-term energy outlook released May 11, the US is expected to export 8.6 billion cubic feet per day (Bcf/d). This constitutes a drop from 9.2 Bcf/d in April. However, peak demand driven by strong demand in Asia and Europe is projected to increase to 9.0 Bcf/d through June and July. That bodes well for higher prices in the coming months.

Still, shorter-term weather trends and storage reports may bring some volatility in the near term. The latest 8- to 14-day temperature probability forecast from the National Weather Service (NWS) shows an increased chance of higher-than-average temperatures across the Northern United States. On the other hand, Texas and the Florida panhandle may see below-average mercury readings (see chart below).

Overall, the actual outcome looks to be a slightly bearish one, should the forecast turn out as expected.

EIA US LIQUIFIED NATURAL GAS EXPORTS

Instead, the EIA’s Weekly Natural Gas Storage Report could drive prices. Since we are in the injection season until October, a build in underground storage is typical. According to the DailyFX Economic Calendar, natural gas stocks for the week ending May 28 are expected to increase by 95 billion cubic feet. A smaller-than-expected build may help underpin prices.

Overall, prices may not see their next major move until the next LNG export report, which is due out at the end of the month. Any large surprises in inventory levels or unusual weather patterns may see volatile trading however. It is important to note underground storage levels are below the 5-year average, although they aren’t far off from that level (illustrated in the chart below).

NATURAL GAS TECHNICAL FORECAST

Price appears to have stalled out after a run higher from the 2.832 swing low last week. The 23.6% Fibonacci retracement appears to be offering a level of resistance as the heating gas attempts to recapture a long-term trendline from the September swing low. Moving above the trendline will likely bring some bullish energy with it.

The May high at 3.150 will shift into focus above the trendline, followed by the 2021 high at 3.316. Above that lies the multi-year high at 3.396. To the downside, support may be found at the 38.2% Fib level. A break lower could see the 20-day Simple Moving Average (yellow line on chart) step in to provide support. Overall, the September trendline is the key technical barrier to watch (red channel on the chart below).

NATURAL GAS DAILY CHART

Risk Warning:

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