• Gold price is aiming to extend its recovery above $2,020.00 as US NFP report seems less supportive of hawkish Fed bets.
• A scrutiny of the US labor market report showed that March’s labor additions were downwardly revised.
• Gold price has shown a recovery move after correcting to near the prior accumulation area placed in a range of $1,971-2,009.

Gold price (XAU/USD) is looking to extend its recovery above the immediate resistance of $2,020.00 in the early Tokyo session. The precious metal was heavily dumped on Friday after the release of the solid US Employment data. However, a scrutiny of the US labor market report showed that March’s labor additions were downwardly revised, which changed the entire context.

The addition of fresh talent in March’s Nonfarm Payrolls (NFP) report was revised down from 263K against the previously reported for March to just 165K. A 37% downward revision in March’s Employment report meant that the net jump in fresh payrolls in April was a mere 2%, making it insufficient for the Federal Reserve (Fed) to reconsider its neutral interest rate guidance.

However, the catalyst that will keep haunting Fed policymakers is the upbeat Average Earnings report. Earnings accelerated in April at a pace of 0.5% while the street was anticipating a pace of 0.3%.

Optimism influenced by the unimpressive US NFP report resulted in a rally in S&P500. Investors believed that the worse is over for now as the Fed has reached its terminal rate. Meanwhile, US President Joe Biden is to meet with Speaker Kevin McCarthy and other congressional leaders on Tuesday to talk about the looming debt ceiling crisis, as reported by ABC News. US Biden has already warned Republicans that a delay in settling the US debt crisis could cost significant labor loss and Gross Domestic Product (GDP).

Gold technical analysis

Gold price has shown a recovery move after correcting to near the prior accumulation area placed in a range of $1,971-2,009 on a two-hour scale. The precious metal found support near the 200-period Exponential Moving Average (EMA) at $2,003.72. Also, the Relative Strength Index (RSI) (14) has defended its cushion around 40.00 in the meantime.

Gold two-hour chart

Scope Ratings on Friday placed the United States of America's AA long-term issuer and senior unsecured debt ratings in local and foreign currency under review for a possible downgrade due to longer run risks associated with the misuse of the debt ceiling instrument, per Reuters.

Scope, the leading European credit rating agency per Reuters, said that recurrent debt-ceiling crises have resulted in phases of debt repayment distress for the US government, adding that the government is dependent on last-minute congressional action to ensure repayment of its debt in full and on time.

Key statements

Also read: Forex Today: Commodity currencies comeback, focus shifts to US inflation

“The European Central Bank's (ECB) interest rate hikes are starting to have an effect, but more will be needed to contain inflation,” said Dutch Central Bank President Klaas Knot per Reuters.

The news portrays ECB’s Knot as a policy hawks as it cites the policymaker’s vote for the ECB decision on Thursday to slow the speed of rate hikes to 25 basis points, or 0.25%.

“But, speaking on Dutch television, he said he still could support the lifting of rates to 5% from the current 3.25%, or even higher - if inflation proves more persistent than he expects,” adds Reuters.

ECB’s Knot also said that their policy works with a certain delay, so the biggest effects of what we have done so far are still in the pipeline

Also read: EUR/USD grinds higher past 1.1000 with eyes on US inflation, banking report

“US Treasury Secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a "constitutional crisis" that also would call into question the federal government's creditworthiness,” per Reuters.

The news also mentions that Yellen sounded the alarm over possible financial market consequences if the debt ceiling is not raised by early June, when she said the federal government could run short of cash to pay its bills.

It should be noted that US Treasury Secretary Janet Yellen spoke at the ABC program "This Week."

Additional comments

Also on the subject

Apart from US Treasury Secretary Yellen’s comments, Reuters also mentioned that US President Joe Biden is preparing to meet on Tuesday at the White House with Republican House Speaker Kevin McCarthy, Republican Senate Minority Leader Mitch McConnell and top congressional Democrats to discuss the issue.

“A group of 43 Senate Republicans on Saturday said they oppose voting on a bill that only raises the U.S. debt ceiling without tackling other priorities, showing they could block such a plan by Democrats,” adds the news.

Also read: EUR/USD grinds higher past 1.1000 with eyes on US inflation, banking report

• GBP/USD seesaws around one-year high after posting third weekly gain.
• Upbeat UK data teases strong BoE rate hike and allow Cable buyers to remain hopeful.
• Fed’s dovish hike, fears emanating from US banking and debt ceiling issues weigh on US Dollar despite NFP-led bounce.
• UK markets are off on Monday, BoE, preliminary UK Q1 GDP and US CPI eyed for the week.

GBP/USD makes rounds to the highest level in a year, steady near 1.2635 during early hours of Monday morning in Asia.

Even so, the Cable pair buyers occupy the driver’s seat as the key week comprising the Bank of England (BoE) Monetary Policy Meeting, UK Gross Domestic Product (GDP) for the first quarter (Q1) of 2023 and the US Consumer Price Index (CPI) for April loom. That said, the pair buyers cheered broadly upbeat UK activity data and the US Federal Reserve’s (Fed) dovish rate hike, as well as broad US Dollar weakness, in that last week.

US Dollar Index (DXY) dropped for the third consecutive week despite paring some of the losses on Friday’s upbeat US jobs report for April. It’s worth noting, however, that the latest hawkish comments from a Fed officials and negative developments around the US banking and debt ceiling issues seem to challenge the GBP/USD bulls amid holiday in the UK.

On Friday, the US employment report for April surprised markets by unveiling a jump in the headline Nonfarm Payrolls (NFP) by 253K expected and revised down prior readings of 165K. Further, the Unemployment Rate also eased to 3.4% versus 3.5% market forecasts and previous mark whereas Average Hourly Earnings improved to 4.4% YoY from 4.3% prior (revised) and analysts’ estimations of 4.2%.

Following the upbeat US employment report, St. Louis Federal Reserve President James Bullard, who supported the 25 basis point rate hike that the Fed took last week, called it "a good next step." The policymaker cited significant amount of inflation in the economy and "very tight" labor market to back his hawkish bias.

On a different page, US Treasury Secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a "constitutional crisis" that also would call into question the federal government's creditworthiness, per Reuters. Elsewhere, US Senior Loan Officer Opinion Survey on Bank Lending Practices is up for release during the week and will be eyed for banking crisis.

At home, the final readings of the UK’s S&P Global/CIPS Services PMI rose past 54.9 initial forecasts to 55.9 for April while the Composite PMI also increased to 54.9 versus 53.9 flash estimations for the said month.

Against this backdrop, Wall Street ended the week on the positive side while the US Treasury bond yields bounced back.

Moving on, BoE’s ability to convince hawkish bias amid upbeat inflation and activity data will be the key for the GBP/USD pair traders to watch for clear directions.

Technical analysis

A clear upside break of a one-month-old resistance line, now immediate support around 1.2590, directs GBP/USD towards crossing the previous yearly high of near 1.2665.

• EUR/USD remains sidelined after a volatile week, defends multi-day-old trading range around yearly high.
• ECB’s comparatively more hawkish bias than Fed joins US banking fears to fuel Euro prices.
• US CPI for April, a bank survey report eyed this week for clear directions.

EUR/USD begins the trading week without surprises around 1.1025, following a volatile week that ended near the start.

The Euro pair cheered the European Central Bank’s (ECB) comparatively more hawkish rate hike than the Federal Reserve (Fed), as well as the fears emanating from the US banking crisis and the debt default woes. However, the region’s economics weren’t so impressive and the US employment report for April marked strong prints, which in turn prod the EUR/USD bulls.

On Friday, the US employment report for April surprised markets by unveiling a jump in the headline Nonfarm Payrolls (NFP) by 253K expected and revised down prior readings of 165K. Further, the Unemployment Rate also eased to 3.4% versus 3.5% market forecasts and previous mark whereas Average Hourly Earnings improved to 4.4% YoY from 4.3% prior (revised) and analysts’ estimations of 4.2%.

Following the upbeat US employment report, St. Louis Federal Reserve President James Bullard, who supported the 25 basis point rate hike that the Fed took last week, called it "a good next step." The policymaker cited significant amount of inflation in the economy and "very tight" labor market to back his hawkish bias.

On the other hand, “European Central Bank (ECB) interest rate hikes are starting to have an effect, but more will be needed to contain inflation,” said Dutch Central Bank President Klaas Knot on Sunday per Reuters. On Friday, ECB Governing Council member and Bank of France head Francois Villeroy de Galhau said that there will likely be several more hikes.

During the last week, the ECB matched market forecasts by announcing a 25 basis points (bps) increase in its benchmark rates and also unveiled faster dialing back of its Asset Purchase Programme (APP) to around EUR25 billion per month from July, from the current pace of EUR15 billion per month. The regional central bank chose to remain hawkish and shut the door for a rate hike pause while saying, “Inflation outlook continues to be too high for too long." Following the Interest Rate Decision, ECB President Christine Lagarde said, "We are not Fed-dependent in rate decisions, we can tighten if the Fed pauses."

On a different page, Reuters reported that US Treasury Secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a "constitutional crisis" that also would call into question the federal government's creditworthiness.

Amid these plays, Wall Street ended the week on the positive side while the US Treasury bond yields bounced back. Even so, the US Dollar Index remained pressured.

Moving on, US Consumer Price Index (CPI) for April will be crucial to watch for the EUR/USD traders for clear directions, especially after Friday’s upbeat US NFP. Also, US Senior Loan Officer Opinion Survey on Bank Lending Practices and the debt negotiations will be eyed too. It should be noted that there are no major data/events from Europe this week.

Technical analysis

A three-week-old bullish trend channel, currently between 1.1115 and 1.0955, appears crucial for EUR/USD traders to watch. That said, bulls appear running out of steam of late.

• AUD/USD is looking to climb above 0.6750 as Fed to remain neutral on interest rates.
• The USD Index failed to get sustained positive momentum despite a solid US labor market.
• Robust earnings could propel US inflation as households would be equipped with higher funds for disposal.

The AUD/USD pair is making efforts to shift its auction above the immediate resistance of 0.6750 in the early Asia session. The Aussie asset is expected to attract significant bids as the Federal Reserve (Fed) is expected to pause paddling the interest rates cycle despite tight United States labor market conditions.

S&P500 was heavily bought on Friday as investors focused on optimism derived from neutral guidance from the Fed and ignored US banking jitters, portraying a cheerful market mood. The US Dollar Index (DXY) looks vulnerable above the immediate support of 101.20. The USD Index failed to get sustained positive momentum despite the serious addition of fresh payrolls in the US labor market.

Meanwhile, the US Treasury yields showed some recovery as investors thought solid US Employment data could force Fed policymakers to reconsider their pausing approach. And, solid US Nonfarm Payrolls (NFP) could provide a base for the data-dependent approach to be followed by the Fed.

As per the US Employment report, the US economy added 253K fresh jobs in April, higher than the consensus of 179K and the former release of 165K. The Unemployment Rate softened to 3.4% vs. the expectations and the prior release of 3.5%. Apart from that, monthly Average Hourly Earnings accelerated at a pace of 0.5% while the street was anticipating a pace of 0.3%. Robust earnings could propel US inflationary pressures as households would be equipped with higher funds for disposal.

On the Australian Dollar front, investors will focus on the quarterly Retail Sales data. First-quarter Retail Sales are expected to contract by 0.4% vs. the former contraction of 0.2%. This might allow the Reserve Bank of Australia (RBA) to keep interest rates steady as declining retail demand is not supportive of policy tightening.