WIKIFX REPORT: Gold Price Forecast: Fundamentals Behind a Strong USD

Economic data released and expected

The eurozone manufacturing PMI data Flash (August) 49.7 has come in higher than expected 49 and lower than the previous of 49.8 although, the actual print remains below 50 reflecting an economic contraction in the European economy. The situation in the UK was not better, as the data of August for the same mentioned index 46 came in lower than expected at 51.1 and the previous of 52.1

This makes Investors to wait for the US manufacturing PMI Flash (August) to be released at 5:45 pm UAE time, then the eurozone consumer confidence index (August) with the US new home sales index data (July) come at 6:00 PM.

Indices and Bonds Yield

The US equity futures with most of the European indices remained downbeat as some Fed members hawkish statements highlighted the possibility of hiking 75bp in the upcoming September meeting.

Investors hope to get more clarity from the Fed chair‘s speech on Friday last week at the Jackson Hole event. Powell is likely to emphasize the central bank’s commitment to bringing inflation levels to their target at 2% without expressing the size of the rate hike in September as it is data-dependent ie, on Augusts (NFP and inflation reports) yet traders look for any hints about the Fed's policy in the short/long term.

The 10-year US bond yields rallied above 3% levels, while the 10-2 years yield narrowed to nearly 30 points after reaching nearly 50 basis points thanks to the markets belief that the Fed may consider cutting rates in 2023.

Major FX Currencies

The US dollar benefited from several factors that provide solid support to its price in the short/mid-term:

• The current geopolitical tensions keep investors closer to the US Dollar safety

• The US Dollar edge over other major currencies in terms of interest rates yield, and prospects of even widening the gap with the People's Bank of China cutting rates and BOJ and SNB keeping negative interest rates.

• The US Economy is in a far better position than the European which suffers from energy crisis and political instability in Italy.

• Hawkish statements form some Fed members to keep the Fed's tight policy

As for the euro, the European Central Bank may need to tighten its monetary policies even more, as the Euro declined below the parity level against the US dollar.

Technically, the EUR/USD retreated on 22nd August to a new trading zone 1.0000-0.9701 hinting to test the lower end of this zone. A further daily close below the low end may send the price even lower towards 0.9600. On the other hand, a daily close above the higher end of the zone may encourage traders to rally the price towards 1.0146

Commodities

Gold prices fell on the US dollar rally due to their negative correlation. Investors chose the US Dollar over gold as they believed in the Feds high potential of bringing inflation levels to their 2% target.

Technically, the gold price closed yesterday below 1747 hinting towards 1720, on the other hand, a daily close above 1765 could send the price to revisit 1789.

Oil prices have risen today by 2.5% on a possible higher demand as higher gas prices caused by Russia cutting off gas supplies completely to Europe could lead producers to switch from gas to oil.

Technically, West Texas oil prices closed yesterday above 89.00pb hinting at a possible rally towards 93.50. A daily close above this level opens the door for bulls to rally the price towards 98.65. On the other hand, a daily close below 89.00 could send the price back to 87.13 and 85.15, respectively.

US Dollar Index - Daily Price chart

On August 10, the US Dollar index declined to a five-week low at 104.28 however, the price U-turned later and closed two days after above the 50-day moving average hinting at a bulls comeback.

Last week, the price broke above the upward trendline originating from the June 3 low at 101.45 then moved to the current trading zone 108.11 - 110.09. therefore, the Dollar index may be on the way to a test of the high end of the mentioned trading zone. A daily close above the high end of the zone could embolden traders to rally the price towards 112.03. On the other hand, a daily close below the lower end of the signals a possible fall towards 105.47.