Gold Rallies as US Dollar Sinks on Jobless Claims Surge, XAU/USD Eyes Bullish Engulfing

Gold, XAU/USD, US Dollar, Jobless Claims, Technical Analysis – Asia Pacific Briefing:

• gold prices Thursday rebounded as U.S. dollar weakened
• An unexpected rise in US jobless claims led to a decline in Treasury yields
• XAU/American dollar Bullish engulfment in focus the prices test support

Gold prices benefit amid a softer US dollar and Treasury yields

Gold prices rose 1.3 percent on Thursday, marking the best one-day performance since May 2, which was more than a month ago. The rise of the yellow metal coincided with the weakness of the US dollar. The DXY dollar index fell -0.76 percent, the worst 24-hour performance since March 13, which was almost 3 months ago.

Gold often acts as a trading instrument against fiat currencies. Of note was a drop in Treasury yields on Thursday, especially the longer-term maturities. The 10-year interest rate fell 2.03%, a day after rising +3.74% due. to unexpected tightening of the major central banks this week. As such, the softer US dollar and weak government bond yields have combined to create a headline environment for gold.

A closer look at the past 24 hours showed that financial markets paid close attention to the latest US Unemployment Claims report. That number unexpectedly rose by 261K last week, well above the consensus of 235K. It also marks the highest point since November 2021. This data is some of the most recent data we have on the state of the labor market in the United States.

An unexpected rise in jobless claims has poured some cold water on bets that the Federal Reserve may have to raise interest rates again in July. The consensus next week is that the central bank will pause tightening. Given that the economy has been holding mostly together amid growing fears of a recession, the jobless claims report by itself probably wasn’t enough to spark panic about an impending recession. Stock markets broadly rebounded.

With this in mind, gold is being prepared for possible follow-on over the remaining 24 hours. The economic schedule winds down significantly as the weekend approaches. As such, this could leave market sentiment in the driver’s seat as XAU/USD could head from here.

Technical analysis of gold

Taking a look at the daily chart, gold has left behind a Bullish Engulfing candlestick pattern around the key support in 1936. This goes against the recent bearish death cross that formed between the 20 and 50 day simple moving averages. As such, keep a close eye on the follow-up from here. Extending gains puts focus on the May high. Otherwise, the downside break would expose the 38.2% Fibonacci retracement level at 1903.

XAU/USD daily chart

Chart created in TradingView

– By Daniel Dubrovsky, Chief Strategist for DailyFX.com