Gold Price, US Dollar, Fitch Downgrade and Treasury Yield in Focus – NFP Data
As we head into the weekend into NFP Data release, gold price seems to be at a pivotal point, with the US Dollar strengthening as Treasury yields rise.
The week has been eventful for markets, and we may see more action with the upcoming release of non-farm payroll data.
On Tuesday, the Fitch downgrade of US sovereign debt credit rating from AAA to AA+ sparked a risk-off reaction in the markets, despite Treasury Secretary Janet Yellen criticizing the move as “arbitrary” and “outdated.”
Adding to concerns for US debt, the US Department of Treasury announced on Wednesday that they will seek to issue US$103 billion next week, up from the US$96 billion last time.
The increasing cost of Treasury borrowing has been most noticeable in the back end of the yield curve, with investors demanding more reward for term risk as the US government balance sheet deteriorates over time.
The benchmark 10-year note is nearing 4.20% for the first time since November last year, after dipping to 4.73% a fortnight ago. Despite this, the short end of the Treasury curve seems to be more stable, with the market viewing the Federal Reserve as nearing the end of its tightening cycle.
The US Dollar has benefited from this period of risk aversion, with the DXY (USD) index continuing to climb since its low in the middle of July.
The GVZ index measures implied volatility for gold, and while gold volatility has been low recently, it has increased slightly in the last few trading sessions.
This may indicate some uncertainty in the market, and a significant price move could be on the horizon. Despite these challenges, gold has held up reasonably well so far, but continued headwinds could eventually undermine its value.
Gold Technical Analysis Snapshot
The current price of gold is being tested against a trend line for support. If it falls lower, there may be support in the range of 1906 to 1896, if it drops further, the next support will be in the range of 1826 to 1908.
As for resistance, it could be found at either the recent peak of 1983 to 1989 or the next resistance in the range of 2044 to 2052.
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