Weekly Market Analysis / 2 - 6 August 2021

The XAU/USD pair started the week under modest selling pressure but struggled to gather bearish momentum in the absence of significant fundamental drivers. After closing flat on Monday and Tuesday, gold climbed above $1,830 on Wednesday. Nonetheless, the renewed USD strength in the second half of the week forced the pair to, once again, turn south. With the US labour market report showing impressive job gains in July, gold declined sharply and touched its lowest level in more than a month at $1,758 on Friday before steadying around $1,760.

What Happened Last Week

  1. Monday, the data from the US showed the economic activity in the manufacturing sector continued to expand in July albeit at a softer pace than it did in June with the ISM's Manufacturing PMI declining to 59.5 from 60.6.

  2. On Wednesday, the Automatic Data Processing (ADP) Research Institute revealed that private sector employment rose by 330,000 in July. This reading missed the market expectation of 695,000 by a wide margin and triggered a USD selloff, allowing XAU/USD to rise above $1,830.

  3. On Friday, that Nonfarm Payrolls (NFP) rose by 943,000 in July, surpassing the market consensus of 870,000. Additionally, June’s print got revised higher to 938,000 from 850,000. Furthermore, the Unemployment Rate declined to 5.4% from 5.9% and the annual wage inflation rose to 4% from 3.7%. The impressive jobs report confirmed the hawkish tilt in the Fed’s policy outlook and provided a strong boost to the greenback. In turn, XAU/USD lost more than 2% in a single day.

News to Follow

  1. Tuesday, ZEW Survey results for the euro area and Germany will be featured in the European economic docket ahead of Nonfarm Productivity and Unit Labor Costs data from the US for the second quarter.

  2. On Wednesday, the US Bureau of Labor Statistics will release the July Consumer Price Index (CPI) data. The annual CPI climbed to 5.4% in June and a similar reading in July is likely to help the USD continue to outperform its rivals.

  3. Later in the week, the weekly Initial Jobless Claims data and the University of Michigan’s Consumer Sentiment Survey will be looked upon for fresh impetus. Additionally, investors will pay close attention to comments from Fed officials ahead of the highly-anticipated Jackson Hole Symposium. In case FOMC policymakers confirm a reduction in asset purchases toward the end of the year, the USD rally could pick up steam and vice versa.

Short-Term Outlook

With this recent decline there is more room on the downside before XAU/USD become technically oversold. On the downside, the initial resistance is located at $1,760 (static level). Below that level, the next target could be seen at $1,750. Resistances on the other hand, are located at $1,800, $1,805 and $1,820.