Focus on US April Nonfarm Payrolls

Commodity

Central Bank

Summary:

Due to market expectations of continued strong employment growth in the US, gold prices are struggling to gain momentum. The less hawkish outlook from the Fed has dragged the US dollar to multi-week lows, providing support for gold prices ahead of the crucial US nonfarm payrolls data release.

SELL XAUUSD

Close Time

CLOSED

2299.24

Entry Price

2178.00

2364.00

4341.62 +42.23 +0.98%

288.4

Pips

Loss

2178.00

2328.08

Exit Price

2299.24

Entry Price

2364.00

Fundamentals

This Friday, the US Department of Labor will release the April nonfarm payrolls report. Current market expectations suggest the report will show robust growth in employment momentum, with continued easing in wage pressures.

A Bloomberg survey's median estimate anticipates a seasonally adjusted nonfarm payroll increase of 240,000 jobs in April. Average hourly earnings are expected to grow by 4% year-on-year, marking the slowest pace in nearly three years. The unemployment rate is forecasted at 3.8%.

Related data shows that ADP private payrolls increased by 192,000; the ISM manufacturing employment index rose slightly from 47.4 to 48.6; and the four-week moving average of initial jobless claims edged down from 214,000 to 210,000. All of these indicate that the outlook for nonfarm payrolls may exceed expectations.

"Another upside surprise to payrolls would further the recent narrative of few or no rate cuts from the Fed," Citigroup economists Veronica Clark and Andrew Hollenhorst wrote in an April 30 note previewing the numbers. "But Fed officials have been downplaying any hawkish reaction to stronger employment, and a downside surprise to employment would lead to a sharp pricing-in of more Fed rate cuts."

Market Outlook: The US nonfarm payrolls report is a focal point for global financial markets, with significant implications for the Fed's future monetary policy decisions. The persistently strong labor market growth this year, contrary to predictions of economic slowdown, has consistently surprised economists. This resilience puts the Fed in a dilemma as policymakers remain reluctant to initiate rate cuts without clearer signs of inflation being under control.

While this month's employment data alone may not be sufficient to prompt immediate policy easing, it is crucial for establishing trends that could affect the Fed's confidence levels. Key indicators including overall employment growth, unemployment rate, and wage growth must collectively signal a cooling labor market to compel the Fed to consider easing policy later this year.

Market reactions suggest attention to the 10-year Treasury yield. Breaking below support at 4.568 would indicate a short-term top at 4.730. Further pullback could return to the 55-day SMA (currently at 4.414), or even further to the 38.2% Fibonacci retracement level of 3.780 to 4.730 at 4.367. If realized, the decline in the 10-year Treasury yield would weigh on the dollar, benefiting gold.

In the past 35 nonfarm payroll releases (excluding March 2023 data), 10 releases were below expectations, while 25 were above expectations. On average, the actual value deviation from expectations for below-expectation releases was -0.92, while for above-expectation releases, it was 1.42. Fifteen minutes after release, if nonfarm data is lower than market consensus, gold prices on average rise by $8.33. If nonfarm data exceeds market consensus, gold prices on average fall by $5.04. This finding suggests that investors' immediate reactions to below-expectation nonfarm data may be stronger.

Technical Analysis

From a technical perspective, the price action of gold within a range since the beginning of this week forms a rectangular pattern in a short-term time frame, indicating that the current structure is in a consolidation phase. Nonetheless, the neutral oscillators in the daily chart suggest that both bulls and bears should avoid aggressive bets.

If gold prices further break below the $2,300 level, it may find strong support around the $2,285-$2,280 region. However, if this support area is effectively breached, it could open the door to a deeper correction. Gold's accelerated decline would then approach the next significant support level in the range of $2,268-$2,265, followed by further retreat towards the $2,250-$2,230 range or the psychological level of $2,200.

On the other hand, the current range of $2,325-$2,328 serves as immediate resistance for gold's rebound, followed closely by the $2,331-$2,335 level, and then the resistance highs within the $2,346-$2,351 range. If gold prices continue to break through this short-term trading range and hold above it, it would confirm a breakout to the upside and push gold higher toward the resistance levels of $2,371-$2,378. Any further upside in prices would disrupt the medium-term topping pattern. In terms of trading, a strategic positioning is recommended.

Trading Recommendations

Trading Direction: Short

Entry Price: 2335

Target Price: 2178

Stop Loss: 2364

Valid Until: 2024-05-17 23:55:00

Support: 2300, 2285, 2280

Resistance: 2325, 2331, 2335

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