After the past few weeks’ climb to multi-week highs, gold prices are consolidating with bulls still manifesting a clear, strong bullish sentiment in the market. The increase in compensated absences follows a high point hit earlier this week. The market is awaiting the release of a plethora of other economic indicators in hopes of finding direction. Australia’s trade balance data and China’s Caixin Services PMI are adding mixed signals. Regardless of this uncertainty, the near-term outlook for gold is bullish.
Tuesday’s rally pushed gold prices to a multi-week high, showing strength and resolve as mixed-to-bad economic numbers came flooding in. In the month of Apr, the Australian Trade Balance recorded a surplus of 5413 million AUD. This figure was below the forecast of 6100 million AUD. This adds to trade balance deterioration, however, had little effect on the Australian dollar. The AUD/USD currency pair flies around the 0.6500 level, holding its own even as mixed economic data comes through.
“AUD/USD hovers around 0.6500 after Aus Trade data, China Services PMI” – FXStreet
The USD/JPY currency pair is accelerating. It recently reversed off a multi-month low of 142.50 and was able to successfully reclaim the key psychological landmark of 143.00, in stark contrast to the Australian dollar. Yet this recovery occurs against the background of increasing concern for Japan’s economic outlook. In April, inflation-adjusted wages fell for the fourth consecutive month. If wages continue to fall this would raise fears that the BoJ might have to cut rates further. Such conditions only deepen the plight of the beleaguered Japanese yen.
Foreign exchange traders are jittery, waiting for the next chicken little US data release. They are equally monitoring trade-related headlines and any speech or comments by the Monetary Policymakers Group (the Fed). All of these factors combined could make a big impact on market sentiment and trading strategies over the next few days.
Gold remains a puzzle that continues to fascinate both investors and analysts. Its healthy technical placement just below recent highs bodes well for deep demand for risk-off assets in these dangerous economic times. Clearly, considering sudden shifts in market dynamics, traders are adapting to incredible new information. For this reason, going forward, the gold and FX markets will almost certainly face greater instability.