• Gold price has faced selling pressure around $1,948.00 as the Fed could raise interest rates further.
• US President Joe Biden is scheduled to deliver remarks on the budget agreement at 10:25 GMT.
• Gold price has turned imbalance after a breakdown of the consolidation formed in a range of $1,952-1,985.

Gold price (XAU/USD) is displaying topsy-turvy moves after facing stiff resistance around $1,948.00 post a less-confident pullback. The precious metal is expected to remain on edge as the street has changed its anticipation to a hawkish stance from a neutral mood by the Federal Reserve (Fed) for June’s monetary policy meeting.

S&P500 futures have added significant gains in the early Tokyo session on hopes that US President Joe Biden will soon reach a bipartisan with Republicans for raising the US debt-ceiling limit. US President Joe Biden is scheduled to deliver remarks on the budget agreement at 10:25 GMT.

Gold price is expected to escalate its downfall as a rebound in households’ spending has strengthened fear of more interest rates by the Fed. Friday’s United States Personal Consumption Expenditure (PCE) Price Index (April) data showed persistence in inflation as individuals are still spending significantly. Also, US Durable Goods Orders data expanded by 1.1% vs. a contraction of 1.0% as expected, which indicates resilience in US economic outlook.

Investors should note that the US markets will remain closed on Monday on account of Memorial Day.

The US Dollar Index (DXY) is making efforts for resuming the upside journey after a corrective move to near 104.23. Meanwhile, Chicago Fed President Austan Goolsbee preferred to remain silent on commenting on his decision for the June meeting as the central bank will get a lot of important data between now and then. He further added the full impact of central bank rate increases to date had yet to be felt.

Gold technical analysis

Gold price has turned imbalance after a breakdown of the consolidation formed in a range of $1,952-1,985 on the daily scale. The precious metal has shifted into bearish territory and is expected to find immediate support near March 22 low at $1,934.34. After a breakdown of the March 22 low, the Gold price would get exposed to February 09 high at $1,890.27.

The 20-period Exponential Moving Average (EMA) at $1,975.00 is acting as a barricade for the Gold bulls.

The Relative Strength Index (RSI) (14) has slipped below 40.00, showing no signs of divergence and an absence of evidence of oversold situation supports weakness ahead.

Gold daily chart

US President Joe Biden tries to push back doubt about the recently agreed US debt ceiling extension during a press conference on late Sunday, early Monday in Asia, as he announces the progress in the talks with House Speaker Kevin McCarthy.

Also read: US President Biden, House Speaker McCarthy agree on tentative debt ceiling deal but the default still looms

Key comments

Just spoke with Speaker McCarthy, have reached bipartisan budget agreement that ready to move to Congress.

Agreement protects key priorities that congressional democrats and Biden have fought for.

Strongly urges both chambers to pass the agreement.

Did not make compromise on debt ceiling, made compromise on budget.

People will find he didn't make too many concessions.

Would cause more controversy getting rid of the debt limit.

I believe McCarthy negotiated in good faith.

I expect McCarthy has the votes.

Market reaction

The news allows the US Dollar to remain firmer despite the late Friday’s corrective bounce and initial solution to the default problem. With this, the EUR/USD retreats towards 1.0700 at the latest, falling towards the 10-week low marked the previous day.

Also read: EUR/USD retreats towards 1.0700 despite initial US debt ceiling deal, US NFP, Eurozone inflation eyed

• EUR/USD fades the previous day’s bounce off 10-week low.
• US policymakers offer initial debt ceiling extension agreement but the road through Congress is bumpy.
• US data favor hawkish Fed bets, ECB policymakers appear undecided.
• US House, Senate voting on debt ceiling, NFP and Eurozone inflation are the key to watch during holiday shortened week.

EUR/USD stays defensive around 1.0720-30 despite the US policymakers’ initial victory in avoiding the ‘catastrophic’ default. In doing so, the Euro pair grinds higher following a corrective bounce off the lowest levels since March 20, marked the previous day, but fails to gather upside momentum amid mixed feelings and holidays in the US and most of the Eurozone on Monday.

US President Joe Biden and top congressional Republican Kevin McCarthy reached a tentative deal to raise the federal government's $31.4 trillion debt ceiling through January 2025. The deal, however, lacks support from some of the extreme leftists and rightists due to the compromise each party had to do to reach the agreement. It should be noted that the debt ceiling deal needs to pass through the House on Wednesday and the Senate by June 05 to avoid the looming ‘catastrophic’ default. Hence, optimism surrounding the first step of overcoming the default fades and exerts downside pressure on the EUR/USD pair.

Apart from the US debt ceiling fears, upbeat US data and comments from the International Monetary Fund Managing (IMF) Director Kristalina Georgieva also prod the EUR/USD bulls, not to forget mixed statements from the European Central Bank (ECB) Officials.

In the last week, US PMIs, the second estimate of the first quarter (Q1) 2023 Gross Domestic Product (GDP), Durable Goods Orders and the Core Personal Consumption Expenditure (PCE) Price Index for the said month, known as the Fed’s preferred inflation gauge, marked upbeat details in their latest readings. On Friday, US Durable Goods Orders for April came in better-than-forecast to 1.1% from 3.3% prior, versus -1.0% expected. Further, Nondefense Capital Goods Orders ex Aircraft, also known as the Core Durable Goods Orders, marked upbeat growth of 1.4% compared to -0.2% anticipated and -0.6% previous readings. Additionally, the Core PCE Price Index for the said month rose past market forecasts and previous readings of 0.3% MoM and 4.6% YoY to 0.4% and 4.7% in that order.

Considering the data, IMF’s Georgieva stated that the US interest rates will need to be higher for longer. Alternatively, Federal Reserve Bank of Cleveland President Loretta Mester said that the Personal Consumption Expenditures (PCE) Price Index released on Friday underscored the slow progress on inflation. During the weekend, Federal Reserve Bank of Chicago President Austan Goolsbee welcomed the US debt ceiling news while also saying, amid the CBS Show “Face the Nation”, “I try to make it a point not to prejudge and make decisions when you are still weeks out from the meeting."

On the other hand, European Central Bank (ECB) policymaker, Boris Vujčić, said on Friday, “Inflation momentum is still persistent.” The ECB member also added that it is questionable if we will be able to get to 2% in the next two years. On the other hand, ECB Chief Economist, Philip Lane said that (there is) no sense of certainty in terminal rate.

Furthermore, the last week’s downward revision to the German growth numbers renewed recession fears in the bloc and prod the ECB hawks, which in turn allowed the EUR/USD bears to remain hopeful ahead of the key week comprising US jobs report and Eurozone inflation.

Also read: EUR/USD Weekly Forecast: A debt ceiling deal can save bulls

Technical analysis

Friday’s Doji candlestick above the 200-day Exponential Moving Average (EMA), around 1.0685 by the press time, tests EUR/USD bears. However, the likely corrective bounce needs validation from the 61.8% Fibonacci retracement of its March-April upside, near 1.0740 at the latest.

• AUD/USD has sensed selling interest after a short-lived pullback to near 0.6530 amid hawkish Fed bets.
• The overall market mood is quite upbeat as investors are chasing risk-sensitive assets.
• The USD Index reported three consecutive super bullish weekly settlements amid delay in raising US debt-ceiling limit by the White House.

The AUD/USD pair has sensed selling pressure around 0.6525 after a less-confident rebound in the early Asian session. The Aussie asset is expected to face more offers as the US Dollar Index (DXY) is anticipated to shift in the bullish trajectory for a longer term after a rebound in Federal Reserve’s (Fed) preferred inflation gauge.

S&P500 futures showed a stellar show on Friday supported by solid gains in technology stocks. Investors went heavily for US equities on expectations that the United States economy won’t show a default for obligated payments by the Federal government. The overall market mood is quite upbeat as investors are chasing risk-sensitive assets.

The US Dollar Index reported three consecutive super bullish weekly settlements amid a delay in raising the US debt-ceiling limit by the White House. Lengthy negotiations among the White House and Republican leaders have put US Treasury on its toes. Discussions on the US borrowing cap limit raise were productive this weekend as associated parties agreed that $31.4 trillion debt ceiling will be raised for two years but non-defense spending should match last year’s spending budget.

Investors should note that the US markets will remain closed on Monday on account of Memorial Day.

On Friday, the release of the monthly Personal Consumption Expenditure (PCE) Price Index (April) showed an acceleration of 0.4% as expected by the market participants. The annual figure rose to 4.4% vs. the estimates of 3.9% and the prior release of 4.2%. A solid recovery in households’ consumption expenditure strengthened the odds of more interest rate hikes by the Federal Reserve (Fed).

Meanwhile, the Australian Dollar remained in action after the release of stagnant monthly Retail Sales data (April). The street was anticipating an expansion by 0.2% while previously it expanded by 0.4%. A decline in households’ demand is expected to strengthen the odds of a neutral interest rate policy stance by the Reserve Bank of Australia (RBA) for June’s monetary policy meeting. Higher interest rates and the cost of living forced Australian households to cut their spending sharply.

On Saturday, US President Joe Biden and top congressional Republican Kevin McCarthy reached a tentative deal to raise the federal government's $31.4 trillion debt ceiling through January 2025, two sources familiar with the negotiations said, reported Reuters.

The details of the deal state that it would suspend the debt limit through January of 2025, while capping spending in the 2024 and 2025 budgets, claw back unused COVID funds, speed up the permitting process for some energy projects and includes some extra work requirements for food aid programs for poor Americans.

That said, some of the Republicans and Democrats aren’t happy with the much-awaited announcements due to the compromise each party had to do to reach the agreement. The same push Reuters to mention that the deal still faces a difficult path to pass through Congress before the government runs out of money to pay its debts in early June.

It should be noted that the debt ceiling deal needs to pass through the House on Wednesday and the Senate by June 05 to avoid the looming ‘catastrophic’ default.

“While an end to uncertainty would be welcome, the relief that may come from a deal may be a short-lived sugar high for investors. That's because once a deal is reached, the U.S. Treasury is expected to quickly refill its empty coffers with bond issuance, sucking out hundreds of billions of dollars of cash from the market,” said Reuters.

In this regard, US House Speaker Kevin McCarthy predicted on Sunday, per Reuters, that a majority of his fellow Republicans would support the deal.

On the other hand, Democratic President Biden said he was confident the legislation would pass both chambers of Congress to avoid a US government default. Asked if there were any sticking points, the president replied: ‘None,’ per Reuters.

US President Joe Biden to deliver remarks on budget agreement at 6:25 PM (10:25 GMT) said the White House on early Sunday in Asia while adding “US President Biden spoke with speaker MccCrthy on debt limit.”