Gold Price Outlook: XAU/USD Top in Play as 10-Year Treasury Yield Rebounds?

Gold prices weaken as 10-year Treasury yield trims last week’s loss Focus turns to US retail sales and PPI data before the Fed later on XAU/USD may be vulnerable to a top if trendline breakout continues

Anti-fiat gold prices weakened over the past 24 hours as financial markets took a very different approach from what was witnessed this past week. After the worst weekly performance for the 10-year Treasury yield in about 6 months, bond rates shot higher to start markets off on Monday. This also offered some upward momentum to the US Dollar.

Both bond rates and the Greenback moving higher can open the door to a volatile session for the yellow metal. That is because gold is a non-interest-bearing asset that is primarily priced in US Dollars across the globe. It seemed that traders unwound some dovish expectations for the Federal Reserve ahead of this week’s FOMC monetary policy announcement.

There, investors will be closely tuning in for the central bank’s projections on the long-run path for interest rates and policy tapering. This is amid recent elevated measures of inflation, where core price growth accelerated at the fastest pace in almost 30 years. Albeit, a low-base effect is likely distorting some of the readings, with the price of used vehicles being a key driver of CPI last month.

Looking into the remaining 24 hours, gold may continue to consolidate just under May highs as investors await this week’s highly anticipated Fed rate decision. The US will release figures for retail sales and wholesale inflation (PPI). But, the close proximity of the Fed could mean that lasting follow-through may have to wait until this event risk passes.

GOLD TECHNICAL ANALYSIS

XAU/USD may be at risk to a deeper turn lower if prices can clear immediate support around 1855. That is because the yellow metal closed under rising support from the beginning of April. A bearish crossover also occurred between the 20-day and 50-day Simple Moving Averages (SMAs). But, positive RSI divergence shows that downside momentum seems to be fading. That can precede a turn higher.

XAU/USD 4-HOUR CHART

Crude Oil Forecast: Price Eyes 2018 High as Air Travel Boosts Bullish Narrative

Crude oil breaks above $71.00 as economic reopening gains steam Increased US air travel is providing a tailwind for oil prices October 2018 high shifts into focus as next major upside target

Crude oil prices rose to a near three-year high on Monday, driven by increasing demand-side pressure as the global economic recovery continues to fuel oil-hungry industries and consumer behavior. While social distancing measures in some form remain in place across the United States, restrictions have eased significantly across states. Crude oil rose as high as $71.78 overnight before pulling back slightly.

The near 3-year high in prices reflects not only growing demand, but also a carefully calibrated supply rollout from the Organization of the Petroleum Exporting Countries (OPEC). The energy cartel’s latest monthly report kept total demand at 96.58 million barrels per day (mb/d) but upgraded global oil demand for Q2 2021, offsetting a revision lower for the first quarter.

The upward Q2 revision was attributed to border opening and easing social distancing restrictions. Indeed, restrictions are coming off across the globe. California – the largest economy in the United States – is set to lift the majority of its Covid restrictions on June 15. The move follows reopenings in other large economic hubs across the US like Illinois and New York.

Moreover, air travel in the United States has been on the up. The US Transportation Security Administration (TSA) reported 2,097,433 passengers for June 13, a post-Covid record. The rise in air travel has boosted airline stocks, with Southwest Airlines seeing a near 30% rise year-to-date. This week’s inventory report from the Energy Information Administration (EIA) will shed further light on the US supply picture.

According to the IV Markets Economic Calendar, oil stocks for the week ending June 11 are expected to drop 3 million barrels.

The optimism is expected to increase after US President Joe Biden and United Kingdom Prime Minister Boris Johnson agreed to open travel between the leaders’ respective countries as soon as possible. Overall, the global backdrop looks primed to continue delivering increased demand pressure on energy commodities.

CRUDE OIL TECHNICAL OUTLOOK

The latest run higher has put crude oil prices decisively above the psychological 70 level. The next landmark stands at 76.90, a multi-year high from October 2018. While that point is almost 8% higher, the pace of upward momentum may soon see that level reached. Intermediate resistance from the 161.8% Fibonacci extension could impose some pressure on prices.

Negative divergence from the Relative Strength Index (RSI) and MACD oscillators are quickly fading against the upward strength. A near-term pullback isn’t off the cards, with the 70 handle serving as a likely support level. Overall, however, crude oil’s technical posture continues to strengthen, and the path of least resistance appears to be upward.

CRUDE OIL DAILY CHART

GBP/USD Eyes Trend Support as US Dollar Awaits Fed Dot Plot

GBP/USD price action has gravitated roughly 150-pips lower from its recent swing high Pound-Dollar might rally if this week’s Fed meeting undermines the threat of tapering GBP/USD one-week implied volatility suggests this FOMC update could lack fireworks

GBP/USD currently hovers near the lower end of its recent trading range after sliding 150-pips from its 31 May swing high at the 1.4250-price level. The Pound Sterling has likely faced headwinds with covid cases on the rise across the UK again. In fact, this just prompted Prime Minister Boris Johnson to delay reopening efforts until 19 July.

Meanwhile, the US Dollar appears to be holding up quite well despite last week’s sharp decline in ten-year Treasury bond yields. Perhaps this follows US Dollar bears easing off the gas pedal due to event risk posed by the FOMC rate decision due on Wednesday. And to be fair, the shorter end of the Treasury yield curve (e.g. two-year) has not seen as much downward pressure.

GBP/USD could extend its drop if this week’s Fed meeting reveals a hawkish shift in monetary policy guidance. Markets will likely pay close attention to the updated Fed dot plot and language changed in the press statement. Two FOMC officials upgrading their estimated midpoint target range for the federal funds rate would stand to signal liftoff for benchmark interest rates by the end of 2023. Any tweaks made to the ‘substantial further progress’ goalpost could explicitly allude to the kickoff of Fed taper talks.

Judging by US Dollar implied volatility readings, however, FX options traders see this as a relatively low probability scenario. GBP/USD one- week implied volatility of 6.1% compares to the average reading of 9.0% headed into the last six Fed meetings, which suggests the FOMC update on deck will likely be an echo of the status quo. That said, the US Dollar might weaken and send GBP/USD price action recoiling higher if Fed hawks are disappointed and forced to unwind taper bets.

This brings to focus ascending trendline support as a nearside layer of defense for GBP/USD bulls. Taking out this technical barrier could see GBP/USD challenge its 50-day simple moving average before the 1.4000-level comes into consideration. Maintaining altitude around last week’s low might help fuel a rebound by GBP/USD price action toward the 1.4200-handle. Eclipsing the 10 June close could invalidate the short-term bearish trend and open up the door for GBP/USD to eye year-to-date highs.

GBP/USD PRICE CHART: DAILY TIME FRAME (15 FEBRUARY TO 14 JUNE 2021)

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