Gold Prices Extend Lower as Traders Eye FOMC For Tapering Clues
Gold prices extended lower as the US Dollar climbed ahead of the FOMC meeting
Market anticipates the Fed to start a debate about tapering stimulus, but actions may be months away Selling pressure seems to be building after bullion prices broke a key support level
Gold prices extended lower during Wednesday’s APAC session as the US Dollar and 10-year Treasury yield edged higher. Bullion lost more than 2% of its value since last Thursday, as expectations were built surrounding the Fed’s timeline to scale back asset purchases in the two-day FOMC meeting. Although any actions may be months away, a debate about when and at what pace to withdraw the centraj bank’s $120 billion per month bond purchase will be closely scrutinized by traders.
The recent rise in inflation, ample liquidity conditions and robust economic recovery may support this view, rendering bullion prices vulnerable to further pullback if Fed officials give clarity about the taperingtimeline. On the flip side, if the Fed remains dovish and hints at further delay in the debate, gold prices may embrace a relief rebound.
US producer price index (PPI)climbed 0.8% MoM in May, more than a baseline forecast of 0.6%. This reflects that prices of goods at factory doors are rising at a faster-than-expected pace, echoing readings from China and Japan earlier this month. PPI is widely perceived as a leading indicator for CPI, as producers may intend to transfer higher input costs to finished products.
Therefore, inflationary pressures may be seen in the months to come and may strengthen the case of tapering Fed stimulus. Against this backdrop, the DXY US Dollar index is trading near a one-month high of 90.54, exerting downward pressure on the yellow metal.
Gold Price vs. US Dollar Index – 12 Months
Gold Price – Daily Chart
Swiss Franc Technical Forecast: USD/CHF, EUR/CHF, CHF/JPY Charts
USD/CHF may see bearish pressure build after SMA crossover EUR/CHF returns to former triangle support and 100-day SMA CHF/JPY’s recent run higher threatened by bearish RSI divergence
USD/CHF TECHNICAL FORECAST
The Swiss Franc appears ready to continue appreciating against the US Dollar after a bearish technical crossover between the 50-day and 100-day Simple Moving Averages (SMA) occurred in USD/CHF this week. The currency pair has been on the move lower since its April multi-month swing high. Since then, USD/CHF has fallen just over 5% and currently sits just above the 20-day SMA.
While the SMA crossover puts a bearish spin on technical sentiment, a short-term move higher isn’t off the cards given the rising MACD and Relative Strength Index (RSI). However, the psychologically imposing 0.90 level appears to be offering a degree of resistance against price recently. Overall, the path lower appears to be the most likely outcome given the technical landscape.
USD/CHF DAILY CHART
EUR/CHF TECHNICAL FORECAST
The Swiss Franc has made progress against the Euro in recent months, with EUR/CHF down over 2% from the March swing high. The drop has eaten all gains seen from an Ascending Triangle breakout that occurred in February. The triangle’s rising support level appears to have stepped back in to underpin prices.
Moreover, the 100-day SMA (purple line) appears to be offering a degree of confluent support, with prices recently bouncing off the moving average. Short-term momentum still appears negative, however, with the 50-day SMA (blue line) turning lower. A break below the 100-day moving average would likely see an extended selloff occur.
EUR/CHF DAILY CHART
CHF/JPY TECHNICAL FORECAST
The Swiss Franc has been on a tear against the Japanese Yen since earlier this year when the currency pair broke out from a Descending Triangle. However, the recent swing highs have been accompanied by negative divergences from both the Relative Strength Index and MACD oscillators. That indicates a possible weakening in upside pressure.
That said, the pair may stall out in the near future. Downside protection may be offered by the 20-day SMA (yellow line), which has recently stepped in to underpin price. A break lower may see a shift in direction, possibly reversing some or all of the past months’ gains. The 38.2% and 61.8% Fibonacci retracement levels offer possible support zones if that scenario plays out.
CHF/JPY DAILY CHART
British Pound (GBP/USD) Boosted As UK Inflation Beats Expectations
UK inflation beats estimates.
Cable back to 1.4100, all eyes now on the Fed.
UK inflation rose more than expected in May, according to the latest data from the Office for National Statistics (ONS), driven higher by increased transport costs. CPI including occupier’s housing costs (CPIH) rose by 2.1% in the 12 months to May 2021, up from 1.6% in April, while CPI also rose by 2.1%, up from 1.5% in the prior month. Rising prices for clothes, fuel, recreational goods, and meals and drinks also contributed to the rise in CPIH.
GBP/USD is looking to pull back above 1.4100 in early trade, after hitting a one-month of 1.4034 yesterday. Sterling has been resilient over the last few months and remains well placed to push higher against a range of currencies. Cable traders however will need to factor in tonight’s FOMC interest rate decision before taking a longer-term position. While the Fed is fully expected to leave all policy measures untouched, the accompanying quarterly outlook and dot plot may well show the strength of the US economy and subsequent fears of higher inflation. Any taper talk, or movement in the Fed’s dot plot, will boost the value of the greenback and weigh on GBP/USD.
GBP/USD DAILY PRICE CHART (NOVEMBER 2020 – JUNE 16, 2021)
Trading leveraged derivative products such as Foreign Exchange (Forex) and Contracts for Difference (CFDs) carries a high level of risk to your capital.
These derivative products, many of which are leveraged, may not be appropriate for all investors. The effect of leverage is that both gains and losses are magnified. The prices of leveraged derivative products may change to your disadvantage very quickly, it is possible for you to lose more than your invested capital and you may be required to make further payments.
Before deciding to invest in any financial product, you should carefully consider your investment objectives, trading knowledge and experience and affordability. You should only trade in Forex and CFDs if you have sufficient knowledge and experience of the risks involved in trading such products and if you are dealing with money that you can afford to lose. You should seek independent professional financial advice if you do not understand the risks involved.