Chapter 13 07/06 XAUUSD: Bulls Likely to Test Range Highs as Market Finds Support Near Psychological Level
Summary: Gold prices are facing strong selling pressure as the U.S. labor market continues to heat up with private sector job growth soaring in June, according to a new report from ADP, the automated employment processing company.
Fundamentals
On Thursday, the U.S. ADP report revealed the creation of 497,000 jobs last month, significantly surpassing market expectations of 226,000.
As an initial reaction to the latest labor market data, gold prices fell sharply below the key resistance level of $1,913 on the downside. The overall intraday decline was 0.51%.
The robust labor market data alleviated concerns about a severe economic downturn in the U.S., impacting the gold market in multiple ways. Additionally, wage increases may compel the Fed to maintain aggressive monetary policies and raise interest rates.
The report noted that while wage growth has been declining, wages remain elevated. Over the past 12 months, wages for workers in existing jobs increased by 6.4%, slightly lower than May's 6.6%. Meanwhile, the annual salary growth for job switchers slowed to 11.2%, the slowest pace since October 2021.
ADP Chief Economist Nela Richardson stated, "Consumer-facing service industries had a strong June, aligning to push job creation higher than expected, but wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge."
Breaking down the labor market, the goods-producing sector added 124,000 jobs, with the natural resources and mining sector creating 69,000 jobs, and the construction industry hiring 97,000 new workers. However, the manufacturing sector experienced a loss of 42,000 jobs.
Simultaneously, the service-providing sector added 373,000 jobs last month. Employment growth was primarily driven by the leisure and hospitality sector, which saw an increase of 232,000 jobs.
In terms of data released by the Department of Labor, for the week ending July 1, initial jobless claims in the U.S. rose by 12,000 to 248,000, higher than the previous figure of 236,000. The four-week moving average of initial jobless claims dropped by 3,500 to 253,250, offsetting some of the week-to-week fluctuations.
In terms of the market, since ADP revised its calculation method last summer, it has underreported a total of 392,000 private sector employees. It is unclear whether the June ADP employment report is a catch-up or indicative of a very strong signal that will also be reflected in tomorrow's non-farm payroll data release. Meanwhile, the interpretation of initial jobless claims at this time of year is always challenging due to seasonal factors associated with the timing, duration, and extent of equipment shutdowns by automakers.
Technical Analysis
In recent trading days, gold prices have shown increasing buying pressure, highlighted by a series of higher lows and a tentative breakthrough above the $1,934 level. However, the situation took a turn as the bulls' confidence significantly waned following two consecutive days of substantial retracement, aligning with our previous expectations.
With prices stabilizing near the psychological level of $1,900, we believe the bulls may continue to test the upper bound of the range.
Current momentum indicators indicate bullish strength gathering around the $1,900 level. Specifically, the short-term RSI is rising above the neutral 50 level, while the MACD is strengthening in the positive territory.
If prices continue to rise, the $1,915 level will serve as the first hurdle for the bullish ascent. A breakthrough above this level may challenge $1,921 and, even higher, shift the focus to the upper bound of the range above $1,930.
On the other hand, if the recovery slows and prices reverse downward, the recent support level at $1,893 may serve as the first line of defense. Breaking below this bottom, gold prices may test $1,890, and further decline could pave the way for the three-month low of $1,860.
Overall, as the market stabilizes near the psychological level, the bullish momentum has not completely vanished, and further buying pressure is likely to continue driving up the asset's price towards the upper bound of the range. In terms of strategy, buying the dips is recommended.
Trading Recommendations
Trading Direction: Long
Entry Price: 1900
Target Price: 1934
Stop Loss: 1890
Valid Until: 2023-07-20 23:55:00
Support: 1900, 1893, 1890
Resistance: 1915, 1921, 1929
