NFP blowout, CPI now decides the next move

The market walked into this week expecting solid jobs data. What it got instead was a blowout.

January’s Non-Farm Payrolls printed 130,000 jobs added, comfortably reinforcing the idea that the US labour market remains resilient despite months of tightening financial conditions.

The unemployment rate also edged lower and wage growth held firm enough to keep policymakers alert.

For investors who had been leaning toward a gradual slowdown story, this was not the confirmation they were looking for.

Now, the upcoming CPI y/y data holds the key to validating USD strength, or throwing a wrench into the mix. Basically, we may get one of the following conditions:

• Mixed data: Strong jobs (Good for USD), weakening CPI (Bad for USD)
• Aligned data: Strong jobs (Good for USD), increasing CPI (Good for USD)

Keep reading for today’s Gold technical forecast.

Why NFP’s hot print is a problem for equities and Gold

Stronger employment complicates the rate outlook because a healthy labour market supports household income, and steady income feeds consumption.

When consumption holds up, inflation becomes harder to bring down cleanly.

That feedback loop is precisely why the bond market reacted quickly and why rate expectations shifted almost immediately after the release.

According to the CME FedWatch Tool, the probability of a rate hold at the 18 March FOMC meeting now sits above 92 percent, a significant 20% jump from ~70% rate hold expectations.

But today, the attention pivots to the CPI print, where consensus is looking for 2.5% year-on-year.

Upcoming CPI data will validate or reject inflation fears

As mentioned, today’s CPI yoy forecast stands at 2.5%, a 0.2% decrease from last month’s 2.7% reading. However, that forecast now carries a degree of doubt, as NFP job numbers produced a massive surprise.

Today’s CPI will either validate the USD strength narrative without inflation pressure, or intensify concerns that price growth remains stubborn.

If CPI lands softer than expected, the market can digest strong jobs more comfortably.

It would suggest that economic momentum is not automatically translating into renewed inflation pressure. That combination tends to steady risk appetite and prevents yields from pushing materially higher.

If CPI comes in hot, however, the tone shifts again. Strong jobs paired with firm inflation reinforces a higher-for-longer rate path. The dollar would likely find renewed support, Treasury yields could extend higher, and equities may need to reprice around a less forgiving policy backdrop.

The labour market has already nudged rate-cut expectations further out. CPI now determines whether that adjustment was sufficient or whether markets need to recalibrate again.

Gold’s path today (four-hour timeframe analysis)

After a strong break of our previously marked trendline support, Gold is looking technically bearish. It has also broken below the 20 EMA (4h), which has offered temporary support up until the break.

These technically bearish factors, however, are not immune to invalidation, based on a weaker than expected CPI reading; less than 2.5%.

How Gold may move from here could vary

• Chop under the 20-EMA until it reaches 38.2% or 61.8% Fib, volume-backed fib levels.
• Go higher to retest $5,000 before further decline, which aligns with the 20-EMA.
• Go higher and test $5,100 for a potential bullish break.

Bottom line is this

1. If CPI is weaker than expected, it’s a bullish catalyst for Gold to rise, and weak for USD.
2. If the CPI is as forecasted, Gold remains technically bearish.
3. And if CPI is higher than expected, that is extra fuel for more downside on the precious metal.

As rate hold decisions expectations are, for now, 91.2%, upside could be capped. But, this expectation could certainly change based on how CPI comes out today.

For now, positioning is cautious, volatility is elevated, and the mood is waiting on one number.