The U.S. dollar gained momentum on Thursday amid rising U.S. bond yields following the release of upbeat labor market data, which fueled expectations that the Fed will maintain its hawkish rhetoric.
At the time of writing, the spot price XAU/USD is trading at $1,833, 1.12% below its opening price, after scoring a daily high of $1,858 earlier in the session. On the other hand, the greenback, measured by the DXY index, gained more than 0.85% on the day and is trading at the 105.15 level.
Data from Automatic Data Processing revealed that 235,000 new private jobs were created in December in the U.S., exceeding by far the 150,000 expected. Other data showed that initial jobless claims fell to a three-and-a-half-month low of 204,000 in the last week of 2022, adding to evidence that the labor market is not cooling off even with the Fed’s restrictive policy.
U.S. bond yields, which could be seen as the opportunity cost of holding gold, rose by 1% to 2% across the curve, with the 2-, 5-, and 10-year bond rates at 4.46%, 3.91%, and 3.72%, respectively, as investors are expecting a more aggressive Fed.
In that sense, the WIRP tool suggests that the odds of a 50 bps hike are even up with the probabilities of a 25 bps increase as they rose to 47%, while a week ago, they stood at 27%. The nonfarm payrolls data tomorrow could be crucial for those expectations.
From a technical perspective, the XAU/USD holds a slightly positive short-term outlook despite the current correction, as the price hovers above its main moving averages on the daily chart. On the other hand, indicators point to a deceleration of the bulls’ momentum.
The following support levels are seen at the $1,820 area, followed by the 20-day SMA, currently at $1,806. On the other hand, resistance levels line up at the $1,850 area, and the six-month high struck on Wednesday at $1,865 ahead of the $1,896 level, which is the 61.8% retracement of the $2,070-$1,615 decline.