While weak Chinese economic data weighed on commodities in the week’s opening session, the gold spot price (XAUUSD) has made headways on a weakening greenback. With the upcoming Federal Reserve meeting looming, a potentially pivotal retail sales report lies ahead, which could trigger a directional advance in the spot price action.
On Monday, China reported yearly GDP growth of 6.3%, missing the 7.3% consensus to the downside, while recovering from the prior 4.5%. The optimism around the recovery process is fading, which paints a concerning demand picture for commodities. However, the price action recovered swiftly on a weakening US dollar. While the CME FedWatch Tool predicts a 97.3% probability for a rate hike in July, it only suggests an 11.7% chance of an additional hike by September, with a measly 1.7% chance of two more hikes by November. Therefore, the market priced in a possible end to the rate hike cycle, opening up the potential for policy divergence with the ECB and BoE, who are poised to continue their restrictive path. As a result, the greenback fell close to one-year lows against its major counterparts, boosting the gold price in the Wednesday session.
Technical
On the 4H chart, the spot price threatened a breakdown from the rising wedge but soon found support for a correction, bringing the price action back within the wedge. With the daily pivot support at $1,953.44 per ounce, the momentum tilts to the upside, but stiff resistance at $1,961.15 per ounce (R1) is holding off any significant upside moves.
A breakout at R1 could lead the price action toward $1,966.84 per ounce in a test of the strength of the wedge resistance. However, an additional leg higher could see higher resistance at $1,973.58 per ounce become vulnerable to an additional break toward $1,981.17 per ounce.
However, if resistance at R1 holds, any strengthening in the greenback on a strong retail sales report could catalyze a breakdown at the wedge toward the daily pivot point of $1,953.44 per ounce. To confirm the sustainability of the break, a move below $1,947.09 (S1) could be required, which opens up the potential for a downturn toward lower support at $1,939.65 and $1,931.23 per ounce.
Summary
While weak economic data from China weighed on the gold spot price, the continuous weakening in the dollar is boosting the upside momentum. However, if the greenback finds strength on a strong retail sales report, it could trigger a breakdown at the falling wedge toward $1,953.44 and $1,947.09 per ounce.
Sources: Koyfin, Tradingview
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