Gold up as dollar stalls ahead of US CPI, retail sales

The dollar buying witnessed at the start of the week was driven by rising expectations about a June rate hike following last week’s FOMC statement and a solid US monthly jobs report. But the greenback’s bullish run then paused in midweek amid the lack of any further stimulus. Today, market participants will finally have some top tier data at their disposal. The headline consumer price index measure of inflation will be the key figure to watch, although retail sales should also garner some attention, especially after earnings results from key US retailers disappointed expectations.

The dollar buying witnessed at the start of the week was driven by rising expectations about a June rate hike following last week’s FOMC statement and a solid US monthly jobs report. But the greenback’s bullish run then paused in midweek amid the lack of any further stimulus. Today, market participants will finally have some top tier data at their disposal. The headline consumer price index measure of inflation will be the key figure to watch, although retail sales should also garner some attention, especially after earnings results from key US retailers disappointed expectations.

US CPI and retail sales eyed

The CPI unexpectedly fell 0.3% month-over-month in February, which brought the year-over-year rate down to 2.4% from 2.7% previously. In March, CPI is expected to have rebounded by 0.3%, thus making back the fall witness in the month before. In the event CPI actually prints a higher number, this will further cement a June interest rate hike expectations and may provide some support for the dollar. However, if the CPI comes in weak once again then doubts may grow about the pace of future interest rate rises. Meanwhile core CPI is seen rebounding 0.2% after a 0.1% month-over-month decline in March. In terms of retail sales, the headline figure is expected to come in at +0.6% while core sales is expected to print +0.5%.

Disappointment could undermine USD, underpin gold

I think these expectations may be a bit optimistic and therefore anticipate disappointment. Consequently, the dollar could fall back. The potential weakness in the dollar may help to further underpin some buck-denominated commodities like gold and silver after the metals ended their recent bearish runs the day before.

Gold’s lower highs means rallies could fade

Gold has found technical support from a rising trend line. But with the long-term bearish trend line still in place and the metal recently moving back below the technically-important 50- and 200-day moving averages, the path of least resistance remains to the downside despite the bounce. As such, I am anticipating the selling pressure to resume on any noticeable bounces until such a time there is a clear break in the current structure of lower highs. Specifically, the area round $1246/7 to $1253 is where the sellers may show up again. As well as the moving averages, this area was the last broken support area. Thus it could turn into resistance upon a re-test. Alternatively, a potential break below the short-term bullish trend line could pave the way for a drop towards the key long-term pivotal level of $1200. 

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