Gold and Oil looking to resume the upside if US CPI allows
Positive risk appetite has been driving equities higher after last week’s selloff but continued geopolitical tensions in the Middle East have been limiting the losses in gold. The precious metal is up over 2.5% in the past week supported by fears of broader regional conflict in the area alongside an increase in expectations for a dovish Federal Reserve following weakening US data.
Wednesday’s July CPI will be a key driver in markets. Headline inflation is expected to have remained unchanged at 3% whilst core inflation is seeing softening slightly from 3.3% to 3.2%. If the data comes in softer than expected it could reaffirm the fact that the Fed made the wrong decision in June and now the economy is showing clear signs of slowing, and therefore a 50bps cut in September is the only way to go. If so, we could see recession concerns reignited, which could strengthen the recent bid in gold. Alternatively, a stronger reading could unwind some of the expectations of rate cuts weighing on the appetite for safe haven assets like gold, although, as mentioned above, the ongoing political tensions could limit the losses.
XAU/USD daily chart
Past performance is not a reliable indicator of future results.
On the chart, XAU/USD remains poised to the upside but there is a risk of a correction if resistance continues at $2,477, which would confirm the triple top pattern. For now, buyers seem engaged in the rally as price remains above all four of its key moving averages and the RSI is moving higher. If the US CPI serves as a catalyst for selling pressure, there is a good amount of support levels in focus up ahead, but $2,350 could be the key level for sellers looking for a sustained reversal.
WTI analysis
The combination of improved risk appetite and growing geopolitical tensions has benefitted oil prices after their sustained pullback last week. US crude (WTI) managed to push above $80 per barrel on Monday for the first time in three weeks as buyers rushed to get in at more favourable levels after the price of a barrel dropped to $72 earlier last week.
But Tuesday’s trading saw some indecision creep into the bullish setup as slowing global demand overshadowed supply concerns after the International Energy Agency and OPEC flagged softening consumption in China this week. Meanwhile, the American Petroleum Institute (API) reported a drawdown in U.S. crude inventories of 5.2 million barrels, far more than the 2 million forecasted. Further inventories data will be released today, which alongside the US CPI data, could bring some volatility to oil markets.
For now, WTI seems a little lost for direction just below its key support/resistance range of 80.65 – 82.54. The RSI has started to lose strength in the rise above the 50 mark which suggests a possible lack of commitment for the rally to go further. $80.22 seems like the immediate resistance to break, whilst support could arise at the 200-day SMA at $77.89.
US crude (WTI) daily chart
Past performance is not a reliable indicator of future results.