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Gold prices are lower for a second consecutive week with the previous metal off 1.26% to trade at 1272 ahead of the New York close on Friday. The losses come amid continued strength in the greenback with the Dow Jones FXCM U.S. Dollar Index (Ticker: USDOLLAR) already up 2.45% off the monthly / yearly low made on May 3 rd . The rally is approaching technical resistance heading into next week, and could offering a possible reprieve to gold prices with the focus falling back on the outlook for monetary policy.
Retail Sales released on Friday topped expectations and while the print alleviates some concerns over the health of the consumer, the print does little to move the needle on central bank policy moving forward. If anything, it does leave the door open with the focus now shifting towards more significant data next week. Traders will be closely eyeing the release of the April U.S. Consumer Price Index (CPI) and minutes from April 27 th policy meeting where we hope to get a more detailed picture of where the committee members stand as it pertains to the appropriate timing of future interest rate hikes. Keep in mind that of the Fed's dual mandate, inflation remains the laggard; lending added significance to the current pace of price growth.
Consensus estimates are calling for the core reading on inflation, which strips out food & energy, to print at 2.1% y/y, down from a previous read of 2.2% y/y. With a weaker read on NFPs earlier in the month and growing concerns over softness in global equity markets, the bar may be high for the committee to move forward with the normalization cycle. Fed fund futures are now pricing in just a 4% chance for a hike in June with no material expectations seen until December of this year. That said, look for softness in U.S. data to limit this recent rally in the dollar, with further deterioration in interest rate expectations to benefit the gold prices.
Last week we noted that, "Although the broader outlook for gold remains constructive, the near-term technical picture leaves our topside bias vulnerable with a growing likelihood that prices may yet correct lower before resumption of the uptrend off the 2015 low." This scenario remains in play with the pullback closing out the week just above the lower median-line parallel of the near-term ascending formation off the March low.
Bottom line: its make-or-break heading into next week and while we could get a near-term rebound off this structural support, we'd be looking to sell strength early in the week targeting the monthly low at 1256 & the 61.8% retracement at 1242 - ultimately we would be looking for long-triggers around this region. Interim resistance stands at the upper parallel (blue) with a breach & close above the 2015 high week close / 2016 high-day close at 1291/93 needed to shift the focus back to the long-side.
---Written by Michael Boutros, Currency Strategist with DailyFX
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