Source: PaxForex Premium Analytics Portal, Fundamental Insight
Financial markets are on the cusp of having a bullish week following eight weeks of selling. Traders should remain cautious, as this has all the signs of a bear market rally, with economic conditions weak or weakening, inflationary pressures high, most central banks tightening monetary policy, and corporate earnings suggesting more weakness ahead. Yesterday’s US GDP downward revision to reflect a moderately deeper first-quarter contraction reminded traders that recession indicators remain. The US Federal Reserve, which runs behind its mistakes, is expected to manage a hard landing for the US economy by the end of 2022 or the start of 2023.
PPI reports globally indicate price pressures, which will filter through to CPI readings. Some prefer to look at core readings, excluding food and energy, but the outlook remains high with no signs of easing, and consumers have to pay those costs. The labor market remains tight, with the Great Resignation post-Covid-19 lockdowns ongoing. The global supply chain continues to struggle with bottlenecks and disruptions, keeping price pressures elevated with no immediate signs of easing.
During the Asian trading session, China reported an annualized slump in industrial profits, retail sales in Australia weakened, and the outlook remained negative. The US housing market struggles, eliminating the primary wealth effect for consumers, which can result in depressed activity moving forward after US consumers have dipped into savings and eroding their safety net to provide economic activity based on hope. Markets will get personal income and spending data from the US today, forecasted to show spending outpaced income. Traders will pay close attention to the PCE component of the report, confirming inflation remains red-hot. The May Michigan consumer confidence data will finish this trading week, expected to show an ongoing decrease.
The forecast for the XAU/USD remains bullish after price action bounced off its horizontal support area. Adding to bullishness is the ascending Tenkan-sen, and traders should monitor it for a bullish crossover above its flatlining Kijun-sen. The Ichimoku Kinko Hyo Cloud also stabilized, with the Senkou Span A and the Senkou Span B entering a sideways trend. After the CCI completed a breakout from extreme oversold territory, it accelerated above zero, has plenty of upside potential, and is expected to move into extreme overbought territory. Can bulls maintain the move higher in the XAU/USD and pressure price action 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 1,838.40 to 1,871.20 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 1,853.10
- Take Profit Zone: 1,967.10 – 1,998.20
- Stop Loss Level: 1,810.80
Should price action for XAU/USD breakdown below 1,838.40, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 1,1810.80
- Take Profit Zone: 1,759.10 – 1,786.90
- Stop Loss Level: 1,838.10
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