Gold, Bond Yield, US Dollar Technical Analysis: Inflation Expectations and Growth

The US Dollar Index (DXY) has strengthened significantly, reaching its highest level since November 2022 at 109.95, following strong December Nonfarm Payrolls data. The economy added 256,000 jobs, surpassing the 164,000 forecast. This strong labour market report has alleviated concerns about the need for immediate rate cuts. Federal Reserve officials have signalled that with employment remaining strong, the urgency for further rate cuts is reduced, especially if inflation eases.

Inflation Data to Shape US Dollar Direction

The market is now focused on the CPI data release this week. The PPI and CPI data on Tuesday and Wednesday will provide further direction for the US Dollar Index. The chart below shows the US inflation rate on a MoM and YoY basis, indicating that YoY inflation has been rising over the past two months, showing a positive trend. The YoY inflation was 2.7%, up from 2.6% in October. The market expects a 2.9% increase in December, a 0.2% rise compared to the previous month. This increase in the inflation rate may continue to strengthen the US dollar further.

Similarly, US Treasury yields have surged, with the 10-year benchmark breaking the key resistance of 4.70%. This yield breakout suggests market confidence in economic growth and rising inflation expectations. The Fed’s more cautious stance on rate cuts, especially as inflation remains persistent, has contributed to the rise in yields. The market is now pricing in a less aggressive approach from the Fed, with the probability of rate hikes or cuts in the short term remaining low.

Despite the positive data for the US economy and the surge in the US dollar, gold (XAU) has experienced positive momentum. Gold prices extended their rally on Friday and consolidated around $2,689 as investors digested the strong labour market figures. As the Fed navigates between managing labour market strength and inflation, gold remains an attractive hedge against economic uncertainties, particularly as Treasury yields continue to rise.

Gold (XAU) Technical Analysis

Gold Daily Chart – Breakout from Symmetrical Triangle

The daily chart for gold shows that the price has broken out of the symmetrical triangle following the release of the NFP data. The RSI is rebounding from the mid-level, indicating bullish momentum. Therefore, a break above $2,720 will likely continue the upward movement.

Gold 4-Hour Chart – Symmetrical Triangle

The breakout from the symmetrical triangle is visible on the 4-hour chart. The price remains positive after the breakout and aims to rally toward the $2,720 level. However, the short-term trend is overbought, indicating that the price may be correct in the near term.

Treasury Yields (TNX) Technical Analysis

10-Year Treasury Note Yield Daily Chart – Bullish Momentum

The daily chart for US Treasury yields shows that the yield has broken through the strong resistance at 4.70% and appears strong. The emergence of an inverted head and shoulders pattern indicates strong bullish momentum.

A breakout above 4.70% has opened the door toward 5%. Moreover, the 50-day SMA has crossed above the 200-day SMA, highlighting the bullish momentum. The RSI indicates that the yield is entering overbought territory, suggesting a potential short-term correction.

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

The 4-hour chart for US Treasury yields shows that the yield has hit the ascending channel’s resistance at 4.80%. The RSI shows overbought levels on the 4-hour chart, indicating further consolidation before a move higher.

US Dollar (DXY) Technical Analysis

UD Dollar Daily – Bullish Trend

The daily chart for the US Dollar Index shows that the index remains in a strong uptrend after the breakout from 107. The retracement to 105.60 and the emergence of a bullish hammer at 105.60 indicate that strength in the US dollar will likely persist. Since the index has broken out of a 1-year trading range, it may remain strong.

US Dollar 4-Hour Chart – Ascending Channel

The 4-hour chart for the US Dollar Index shows the formation of an ascending channel. The index is trading within the channel and looks poised for higher prices. The index has also broken the 109.40 level, and the emergence of bullish price action within the ascending channel suggests further upside toward 111.40.