Gold, Bond Yield, US Dollar Technical Analysis: Impact of Inflation and Retail Sales Data

The US inflation data for December reveals mixed signals. The core CPI dipped slightly to 3.2% year-over-year, while headline CPI rose to 2.9%, as shown in the chart below. This increase exceeds the Fed’s 2.0% target. This divergence underscores the ongoing challenges in controlling inflation, despite some moderation in core prices.

Moreover, the services CPI grew by 0.1%, indicating that persistent inflation pressures may be easing. This could provide the Fed with temporary relief.

However, with financial conditions easing and credit markets showing strong liquidity, inflation concerns could resurface if energy costs rise and fiscal stimulus further boosts demand. The US dollar index (DXY) fell after the inflation data, as softer inflation reduced expectations for aggressive Fed tightening. The weakening inflation in services and a decline in the Chicago Fed Financial Conditions Index to -0.63 highlight easing financial stress, comparable to levels seen in 2021. Additionally, the Moody’s Baa corporate bond spread dropped to 1.44, indicating readily available credit, as shown in the chart below.

These trends support market liquidity, which increases pressure on the US dollar. Meanwhile, the 10-year Treasury yield began to correct after the inflation data. However, it may resume its upward trend if long-term inflation concerns persist. A breakout above 5.0% could signal further increases toward 6.0%, potentially negatively impacting bond prices and the broader equity market.

Moreover, the US Retail Sales rose 0.4% in December to $729.2 billion but missed the expected 0.6% increase, as shown in the chart below. The unemployment claims increased to 217,000, higher than the revised 203,000 from the previous week. The weaker spending and a softening labor market reduced expectations for aggressive Fed action, putting pressure on the US dollar.

Gold (XAU) is well-positioned to benefit from these financial dynamics. A higher long-term inflation outlook, combined with geopolitical risks, enhances gold’s appeal as a hedge. Additionally, rising energy costs could reignite inflation concerns, further driving safe-haven demand.

Gold (XAU) Technical Analysis

Gold Daily Chart – Ascending Broadening Wedge

The daily chart for gold shows that the price is trading within an ascending broadening wedge and has rebounded from the support level. This rebound has reached the resistance at $2,720 and is poised for a potential breakout. A break above this level could pave the way for another surge in gold prices.

Gold 4-Hour Chart – Symmetrical Triangle

The 4-hour chart for gold shows that the price has broken out of a symmetrical triangle. Following the breakout, the price retested the triangle before starting a rally toward $2,720. After reaching $2,720 following the release of retail sales data, the price is now consolidating around this level. The RSI is currently at an overbought level in the short term, indicating a potential price correction before another move higher.

Treasury Yields (TNX) Technical Analysis

10-Year Treasury Note Yield Daily Chart – Correction in Progress

The daily chart for the US Treasury yield shows a significant correction following the release of inflation data. This pullback has brought the yield down to $4.60 and $4.40, a strong support area. The long-term trend for the yield remains upward, and this correction could potentially trigger another rally toward 5%.

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

The 4-hour chart for the US Treasury yield shows that it is trading within an ascending channel, with the correction beginning from the channel resistance at 4.80%. This ascending channel has strong support around 4.30% to 4.40%, which could trigger another advance to higher levels. However, a break below 4.40% may lead to a deeper correction in US Treasury yields.

US Dollar (DXY) Technical Analysis

UD Dollar Daily – Correction in Progress

The daily chart for the US Dollar Index shows that it has formed a bearish hammer at resistance, signaling a correction from the overbought region. The inflation and retail sales data have contributed to this correction. This pullback has triggered strong rebounds in EUR/USD and GBP/USD from their respective support levels. The US Dollar Index has now reached the 109 support level and is consolidating around this area while seeking its next direction.

US Dollar 4-Hour Chart – Ascending Channel

The 4-hour chart for the US Dollar Index shows that it is trading within an ascending channel and has reached the support level at 109. A break below 108.70 could extend the correction toward the 107 area, while holding this level may trigger another advance above 111.