Source: PaxForex Premium Analytics Portal, Fundamental Insight
Financial markets show signs of an end to the bear market rally, and economic data continues to paint a mixed picture. Confidence data shows depressed levels, and while inflationary expectations began to ease moderately, they remain high by historic standards. Companies continue to issue profit warnings, lower guidance, announce layoffs, and a decrease in demand across the board. Central banks continue to increase interest rates, raising borrowing costs in a debt-heavy economy, and wage increases to retain workers add to inflation.
New Zealand reported a contraction in retail card spending for July, suggesting the third quarter is off to a negative start. Today’s US second-quarter non-farm productivity data is likely to show a plunge in productivity and surging unit labor costs, following data printed in the first quarter. As market participants put the first half of 2022 in the rearview mirror, which posted two consecutive quarterly GDP contractions, fulfilling the technical definition of a recession, the strong labor market fans hope that the economy will avoid a recession for the first time in history. Adding to recession signals is the inverted yield curve, which has flashed warning signs for several weeks.
After the bear market completed its first phase, the bear market rally, which appears close to the end, completed the second phase. The third phase is a sell-off to retest the June lows, from where a breakdown will extend the bear market, while a reversal could lead to the next bull run. Gold remains the beneficiary as risk sentiment comes off, institutional traders book profits, and the bear market claims its next victim, as more signs point toward typical market behavior, suggesting a top in price action.
The forecast for gold remains bullish as this precious metal bounced off its horizontal support area with plenty of upside potential. Volatility is likely to remain elevated as bulls and bears fight for control, with the Tenkan-sen moving higher and the Kijun-sen attempting to flatline from its downtrend. The Ichimoku Kinko Hyo Cloud stabilized, ending its bearish move and showing early signs of a drift higher, with an ascending Senkou Span A. Traders should monitor the CCI, which drifted out of extreme overbought territory. Sideways trading could lower this indicator, which has more upside potential. Can bulls regain complete control over price action and pressure the XAU/USD into its horizontal resistance area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for XAU/USD remain inside the or breakout above the 1,764.10 to 1,805.70 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 1,785.00
- Take Profit Zone: 1,925.10 – 1,963.40
- Stop Loss Level: 1,710.00
Should price action for XAU/USD breakdown below 1,764.10, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 1,710.00
- Take Profit Zone: 1,629.20 – 1,680.60
- Stop Loss Level: 1,764.10
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