XAU/USD: developing negative dynamics

 
 
 
 
 
 
 

The Asian trading session that passed in the range did not reveal the favorite of the currency market. The DXY dollar index futures also mostly traded near 91.10, 7 pips higher than last Friday's close when the dollar fell sharply amid profit-taking and long positions closing, and after the release of not very convincing statistics on the US labor market.

According to the data provided by the Department of Labor, unemployment in the United States fell by another 0.4% in January (to 6.3%), while hourly wages rose by 0.2% (+5.4% in annual terms). However, investors drew attention to the place in the report of the Department of Labor, which indicated that the number of jobs outside of agriculture in the United States grew by only 49,000 in January after falling by 227,000 in December.

At the same time, many investors believe that the relatively weak labor market data released on Friday will increase the likelihood that the government's economic assistance program will soon be agreed. Markets rallied last week and the dollar strengthened after President Joe Biden stepped up efforts to promote his $ 1.9 trillion anti-crisis package. The Senate will likely approve the budget plan this week, after which the negotiation process required to approve the stimulus program with a simple majority in the Senate will continue.

US Treasury Secretary Janet Yellen said Sunday on a CNN television program that the country could return to full employment next year if Congress approves President Joe Biden's economic support program.

American stock markets rose on Friday. The S&P 500 has shown its best weekly performance since November. The dollar also, as a whole, finished last week in positive territory, despite a strong decline on Friday.

As you can see from the charts of US stock indices and the dollar, their inverse correlation has broken, and now investors are looking for new benchmarks. Some of the investors are looking for them in the vaccination rates in different regions of the world.

Meanwhile, in the coming weeks, the third Covid-19 vaccine may be approved in the United States. Economists and investors hope that higher rates of vaccinations in the US will also set the stage for a rapid recovery in the labor market and an economy hit hard by the coronavirus pandemic.

Investors believe that higher rates of vaccinations and new stimulus measures will help the American economy recover faster, while the incidence of coronavirus is still very high in many regions of the United States. This year, the US economy, economists believe, will have higher growth rates than other world economies, and this, in turn, will create support for the dollar as the national currency of the United States.

Today and tomorrow there are no important macro statistics on the economic calendar. Market participants are likely to be guided by news regarding vaccinations and various statements from politicians and government officials. New drivers are likely to emerge after the US inflation data is released on Wednesday. If they point to low inflation rates, it will be an additional argument in support of the Fed's cautious approach to monetary policy.

Nevertheless, the dollar continues to receive support from rising US Treasury yields. The yield on 30-year bonds for the first time in almost a year (since the end of February 2020) reached 2%, and the yield on 10-year bonds approached 1.20% (1.193% at the time of publication of this article). At the same time, the growing yield of US government bonds increases the pressure on gold quotes.

In theory, additional fiscal stimulus measures will lead to an increase in the debt burden with a possible increase in inflation in the future, which should benefit gold quotes, given the Fed's tendency to maintain a soft monetary policy. However, we may soon see the opposite, negative for gold, effect of the new stimulus plan, as stimulus measures will help keep treasury yields high. And this will continue to put pressure on gold as a defensive asset that does not bring investment income.

At the beginning of today's European session, the XAU / USD pair is traded near the 1812.00 mark, below the important resistance levels 1821.00, 1831.00, 1852.00, maintaining the tendency to further decline (see "Technical Analysis and Trading Recommendations").