Gold Price Forecast: XAU/USD could resume downtrend on strong US jobs data

Gold price attempts a bounce from three-week lows ahead of US Nonfarm Payrolls.

Dhwani Mehta FXStreet

Mixed US data fuels a pullback in the US Dollar and the US Treasury bond yields.
Gold price sees limited upside, as the daily technical setup leans bearish.

Another down week in the making for Gold price, as it is on track to book the worst week in six on Friday. However, the extended pullback in the United States Dollar (USD) combined with retreating US Treasury bond yields are helping put a floor under Gold price in the lead-up to the US Nonfarm Payrolls (NFP) showdown.

All eyes remain on the US labor market report

The US Dollar is facing headwinds from an improved risk sentiment in Asia this Friday, as markets are expectant of stimulus measures to be announced from Chinese authorities, in a bid to stimulate the dwindling post-Covid economic recovery. The US S&P 500 futures are gaining 0.30% on the day, as traders shrug off mixed earnings reports from the United States giants Apple Inc. and Amazon released after market hours on Thursday. The downside in the US Dollar is likely to remain limited, as investors could turn cautious heading closer toward the US employment data release.

The main focus will be on the headline Nonfarm Payrolls figure, which is seen arriving at 200K, and wage inflation. Average Hourly Earnings are seen rising 4.2% YoY in July against the previous increase of 4.4%. A weak NFP print along with soft wage inflation data will ramp up expectations that the US Federal Reserve (Fed) is close to the end of its tightening cycle, which weighs on the US Dollar and the US Treasury bond yields but prop up Gold price. Conversely, strong US labor market data could revive bets for more Fed rate hikes later this year, fuelling a fresh downtrend in the non-interest-bearing Gold price.

On Thursday, the Greenback failed to sustain at monthly highs and retreated on the back of dismal United States economic data releases. US Jobless Claims and the Q2 Unit Labor Cost Index came in mixed while the highly-anticipated ISM Services PMI dropped to 52.7 in July vs. 53.0 expected. However, the US ISM Services Prices Paid sub-index unexpectedly jumped to 56.8 in the reported period. In light of mixed US data and a cautious market mood, Gold price recovered above $1,930, having hit fresh three-month lows at $1,930 earlier in the day.

Gold price technical analysis: Daily chart

Gold price is looking to extend the previous rebound ahead of the US NFP release. In case the US jobs data disappoint, then Gold price is likely to take on its recovery above the bearish 50-Daily Moving Average (DMA) at $1,945. The triangle support also aligns at that level.

Recall that Gold price confirmed a symmetrical triangle breakdown on the daily chart on Tuesday.

Recapturing the latter will call for a test of the bullish 21 DMA at $1,953. A sustained break above the latter will open doors for a rally toward the flattish 100 DMA at $1,969.

Downside risks, however, persist for Gold price, as the 14-day Relative Strength Index (RSI) indicator still holds below the midline.

A failure to find acceptance above the strong hurdle at $1,945 will reinforce selling pressure, dragging Gold price back toward the static support seen around $1,925.

If the Gold price sell-off extends, then early July lows around the $1,910 region will be put to the test.

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Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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