April 6, 2023
Following the release of weaker-than-expected economic data, Wall Street experienced a renewed rush to safety, with bonds surging and equities plummeting. This has rekindled concerns that a recession may be looming, sending shockwaves across the financial markets.
The 10-year Treasury yield tumbled to its lowest point since September, now standing at around 1.5 percentage points below the three-month Treasury bill rate. This widening gap between short-term and long-term yields indicates an impending economic slowdown, which investors are now anticipating.
In response to this uncertain economic climate, investors have shifted their focus to safer investments such as the dollar and the Japanese yen. Gold prices have also soared to a 13-month high, as investors seek a safe haven asset amid the market turbulence.
Several economic indicators have fueled concerns about a potential downturn, including the recent decline in the Institute for Supply Management’s index and the ISM factory survey showing further deterioration. These reports have highlighted the tightening of credit conditions and persistently high interest rates, which could further exacerbate the economic slowdown.
The S&P500 and Nasdaq 100 have both taken a hit, with Consumer Discretionary performing the worst among all groups, dropping by 2.04%. In contrast, the Dow Jones Industrial Average edged higher, but the MSCI world index fell on Wednesday.
As we navigate through these turbulent economic times, it remains uncertain whether a recession is imminent. However, the recent market volatility and economic indicators suggest that we may be headed towards a downturn. As investors seek safe havens, it’s critical to keep a watchful eye on the markets and make informed investment decisions based on the available information.
Technical Analysis
XAUUSD (4-Hour Chart)
Gold prices surged to a new multi-month high of $2,032.03 per ounce on Wednesday before experiencing a downward correction. Despite some profit-taking among traders ahead of the long Easter holiday, the XAU/USD remains steady at around $2,020 and holding onto most of its weekly gains. The weak performance of the US Dollar persists due to lackluster economic data. Though disappointing figures typically prompt risk aversion and boost the Greenback, the focus now is on the US Federal Reserve’s plan to pause rate hikes, which makes the USD less appealing in the long run.
The US recently released the ISM Services PMI, which unexpectedly fell to 51.2 in March from 55.1 in February. The ADP survey on private job creation also revealed a modest gain of 145K in March, missing expectations of 200K and lower than the previous 261K. At the time of typing, price trading at 2020.73 and RSI sits at 67.31.
Examining the 4-hour chart, XAU/USD has lost its bullish momentum, but there are no clear indications of bearishness. Although technical indicators have rotated lower, their downward strength is limited as they are still in overbought territory. Lastly, Gold prices remain well above the bullish moving averages, with the 20 SMA serving as dynamic support at approximately $1,991.20 in the short term.
Resistance: 2,024.90 2,037.85 2,050.00
Support: 2,009.70 1,991.20 1,982.10
