Gold prices consolidate as focus shifts towards US ADP report
- Gold is looking for direction with all eyes on US ADP employment figures.
- The precious metal’s broader bullish trend is losing momentum as the Dollar regains lost ground.
- Further evidence that the US is heading into a soft landing underpins demand for Gold.
Gold (XAU/USD) price consolidates around $2,020 on Wednesday as the reversal from all-time highs at $2,150 seen at the week opening has been contained above $2,000. Gold appears to be holding up this psychological level, although the rebound has failed to find acceptance above $2,040.
US Treasury yields are showing a mild pick up on Wednesday after having lost more than 2% on Tuesday. This is providing moderate support for the US Dollar and weighing on the precious metal as we head into the release of the US ADP employment report.
Data from Tuesday offered a mixed picture. The US ISM Services PMI beat expectations, but the US JOLTS job openings survey revealed that the labour market is starting to feel the pinch of higher interest rates.
Later today, November’s ADP employment report is expected to show a moderate increase in job creation. With the Federal Reserve (Fed) on its blackout period ahead of next week’s meeting, the ADP and Friday’s Nonfarm Payrolls data will be scrutinised with interest for further cues into the Fed’s monetary policy plans.
Daily Digest Market Movers: Gold remains steady at high levels on hopes of Fed cuts
- Gold prices remain steady at high levels as the market is increasingly confident that the Fed will start cutting rates in March.
- The CME Group FedWatch Tool keeps pricing a 53% chance that the US central bank will trim its benchmark rate by 25 basis points in March.
- Markets are in a moderately positive mood on Wednesday, with investors increasingly confident that the major central bank’s tightening cycles have ended.
- US JOLTS Job Openings survey showed that the US labour market is losing momentum, adding to evidence that the restrictive monetary policy is starting to hit demand for workers.
- On the other hand, the US ISM Services PMI showed a larger-than-expected improvement, which discards a sharp downturn in the US economy.
- Tuesday’s data endorses the view of slowing US growth and a softer labour market, consistent with a soft landing narrative. This hurts the US Dollar and US yields, and it is good news for precious metals.
- News that Moody’s has cut China’s credit outlook to negative due to the increasing debt risks is weighing on risk appetite.
- At 13:15 GMT, the US ADP Employment Report is expected to show an increase of 130,000 payrolls in November, up from the 113,000 reported in October.
Technical Analysis: Gold prices tread water below $2,040
From a technical perspective, Gold prices remain in a consolidation mood. Downside attempts are contained above a key support area at $2,000, while upside attempts are capped below the $2,040 level.
The broader bullish trend has lost steam after breaking the 50% Fibonacci retracement level of the November 13 - December 5 bull run. Beyond that, Gold’s inverse correlation with a stronger US Dollar suggests that further decline should not be discarded.
On the downside, a confirmation below the $2,000 support area would negate the broader upside trend and increase bearish pressure towards $1,950 and $1,932.
On the upside, a bullish reaction above $2,040 would clear the path towards $2,067, ahead of the record-high $2,150.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.94% | 0.99% | 0.67% | 1.72% | 0.69% | 1.16% | 0.80% | |
| EUR | -0.97% | 0.05% | -0.28% | 0.78% | -0.27% | 0.21% | -0.14% | |
| GBP | -1.02% | -0.05% | -0.32% | 0.74% | -0.30% | 0.16% | -0.19% | |
| CAD | -0.67% | 0.25% | 0.33% | 1.06% | 0.01% | 0.49% | 0.13% | |
| AUD | -1.75% | -0.80% | -0.75% | -1.08% | -1.06% | -0.56% | -0.94% | |
| JPY | -0.73% | 0.26% | 0.46% | 0.00% | 1.06% | 0.49% | 0.10% | |
| NZD | -1.17% | -0.20% | -0.16% | -0.47% | 0.58% | -0.45% | -0.35% | |
| CHF | -0.86% | 0.11% | 0.15% | -0.17% | 0.92% | -0.14% | 0.33% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Economic Indicator
United States ADP Employment Change
The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Next release: 12/06/2023 13:15:00 GMT
Frequency: Monthly
Source: ADP Research Institute
Why it matters to traders
Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.