Gold, Bond Yield, US Dollar Technical Analysis Following Upbeat US Data

This week’s US economic data has painted a robust picture for the US dollar and Treasury Yields. US GDP grew at an annualized pace of 3.1%, surpassing the estimated 2.8%. Moreover, weekly jobless claims declined to 220K, beating expectations of a slower drop to 229K. These figures align with the Federal Reserve’s revised growth outlook and underscore the resilience of the US economy. The hawkish tone adopted by Fed Chairman Jerome Powell followed the central bank’s decision to cut interest rates by 25 basis points. This stance strengthened the US dollar, driving the Dollar Index (DXY) to test two-year highs.

The Federal Reserve’s updated projections have profoundly impacted market sentiment. Policymakers scaled down the expected rate cuts for next year while raising growth and inflation expectations. The PCE inflation forecast for 2025 was revised upward to 2.5% from the previous 2.1%. Economic growth estimates were also adjusted, with GDP now expected to grow by 2.5% in 2024 and 2.1% in 2025. These adjustments and Powell’s emphasis on inflation risks drove higher US Treasury yields. The US 10-year Treasury yield climbed above 4.5%, reflecting stronger investor demand for US assets.

On the other hand, gold (XAU) prices have struggled in this environment, extending losses below $2,600. Higher US yields and a stronger dollar have limited gold’s recovery potential, amplifying downside pressures. The Federal Reserve’s hawkish outlook and resilient economic data have reinforced the greenback’s attractiveness while weighing heavily on gold. This dynamic suggests that gold’s near-term recovery remains constrained unless there is a significant shift in economic conditions or monetary policy expectations.

Gold (XAU) Technical Analysis

Gold Daily Chart – Double Top

The daily chart for gold shows that the price has been consolidating above the red-dotted trendline for the past three months. A price correction to the red-dotted trendline has resulted in a strong rebound in the past. The price is also supported by the 100-day and 200-day SMAs, which sustain bullish momentum in the gold market.

However, the drop following the Federal Reserve’s rate decision broke the black trendline, forming a double top at the $2,720 resistance level. This break also pushed the price below the 100-day SMA, signalling a potential move toward the $2,550 zone. A break below $2,550 would likely trigger bearish momentum in gold. The price patterns in December can be unreliable due to thin market liquidity. A decisive break above $2,720 is necessary to reactivate the bullish momentum in gold.

Gold 4-Hour Chart – Consolidation

The 4-hour chart for gold shows strong price consolidation above the $2,550 support. The sharp price drop was driven by significant gains in the US dollar following the Federal Reserve’s rate cuts. The RSI suggests that gold may approach oversold levels as the price nears the $2,550 support. This indicates that a rebound from this level could develop.

Treasury Yields (TNX) Technical Analysis

10-Year Treasury Note Yield Daily Chart – Breakout from 1-year Trend Line

The daily chart for US Treasury yields shows that the yield has broken the black trendline at 4.47% following the Federal Reserve’s rate cuts, initiating bullish momentum. This breakout has brought 4.62% and 4.70% into focus as immediate resistance levels. However, a break above these levels would confirm an inverted head-and-shoulders pattern.

The breakout from the black trendline has established bullish price action, suggesting that a move above 4.70% could propel US Treasury yields to even higher levels.

10-Year Treasury Note Yield Hourly Chart –Ascending Channel Pattern

The 4-hour chart for US Treasury yields also highlights bullish price momentum, with a target of 4.70%-4.73%. The ascending channel pattern provides this target, as the price broke above its midline at 4.47%. The RSI approaches overbought levels, suggesting that US Treasury yields may face resistance at 4.73% before potential correction.

US Dollar (DXY) Technical Analysis

UD Dollar Daily – Breakout from Strong Resistance

The daily chart for the US Dollar Index shows that the index has broken above the 107 resistance level after a year of consolidation. This breakout followed a consolidation phase within the 105.60 to 107 zone, reinforcing a bullish outlook.

Additionally, an inverted head-and-shoulders pattern is evident, with the head of the pattern formed by a double bottom around the 100.65 support. The breakout above 107 has initiated an upward trend, signalling a potential move higher for the US Dollar Index.

US Dollar 4-Hour Chart – Ascending Channel

The 4-hour chart for the US Dollar Index shows that the price is trading within an ascending channel. The index has formed a double bottom at the support line of the ascending channel, and the breakout from the blue dotted trendline has pushed the index toward the midline of this ascending channel. The target for this ascending channel is 109.70.