Inflationary pressures remain elevated and central bankers started to acknowledge that they will stay high longer than initially forecast. At the same time, economic indicators point to a slowing economy, with real wages decreasing. The last sign was Friday’s data out of the US, confirming personal income grows below the rate of inflation, eroding consumer spending power. Jerome Powell, the US Fed Chair, called inflation frustrating and admitted it would last longer than his predictions just a few months ago.
Rising inflation and a slowing economy place central banks in a delicate position. Rising rates to curtail further price increases will slow economic performance in the near term, threatening the fragile consumer. With the holiday shopping season a few weeks away, central banks are expected to wait and hope for inflation to come down. Given ongoing supply chain bottlenecks and the rise in demand due to the holiday shopping season, inflation could accelerate faster in the months ahead. Waiting too long to act, which central banks generally do, might lead to above-average inflation for an extended period, pressuring producers, consumers, and the economy.
The forecast for the XAU/USD remains bullish, as inflation appears to gain the upper hand, favoring higher gold prices. Price action stabilized following its correction, with the Tenkan-sen and the Kijun-sen turning sideways. Volatility is likely to increase after the Ichimoku Kinko Hyo Cloud entered a sideways drift of its own. Adding to bullish pressures is the CCI. It accelerated out of extreme oversold territory with plenty of upside potential. Can bulls gather enough strength to pressure the XAU/USD into its horizontal resistance area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
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Should price action for XAU/USD remain inside the or breakout above the 1,754.30 to 1,774.20 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 1,761.45
- Take Profit Zone: 1,824.85 – 1,833.80
- Stop Loss Level: 1,739.00
Should price action for XAU/USD breakdown below 1,754.30, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 1,739.90
- Take Profit Zone: 1,700.00 – 1,717.70
- Stop Loss Level: 1,754.30
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