This week, the US released two economic data points with mixed results, but their impact on the US dollar and gold seems limited.
On Tuesday (August 1st), the US reported lower-than-expected July ISM Manufacturing PMI, with a manufacturing index of 46.4, below the market expectation of 46.8. Although it was higher than the previous value of 46, it marked the ninth consecutive month below the 50 threshold, making it the longest period since the 2007-2009 Great Recession. While the fluctuation in the contracting range of US manufacturing PMI has some influence on the services PMI, it is not significant. Gold initially dropped $10 during trading but quickly rebounded to $1948, experiencing a volatile decline.
However, the US showed strong performance in the July ADP Employment Report released on Wednesday this week. The employment figure stood at 324,000, significantly surpassing the expected 189,000. Does this data indicate robust job growth for July, which will be announced on August 4th? The answer is: not necessarily. Previously, the strong performance of the June ADP report did not align with the subsequent Non-Farm Payrolls data, which showed resilience but fell short of expectations. Consequently, the market's excessively high expectations for better-than-expected Non-Farm Payrolls were swiftly dampened by the following data release, causing a sharp decline in the US dollar and a $15 increase in gold prices.
Therefore, the market should not overprice the Non-Farm Payrolls data based solely on the strong performance of the July ADP report. If the upcoming Non-Farm Payrolls data falls short of expectations, the decline in the US dollar may be more moderate. Conversely, given recent inflation and US second-quarter economic data, the market has higher expectations for a modest decrease in Non-Farm Payrolls. If that is the case, it could support the US dollar, potentially leading to a short-term decline in gold prices.
From a technical standpoint, gold recently broke below the important support level of $1945 and has been hovering between $1932 and $1938. The 5-day MA crossed below the 20-day MA, with the price trading below the 5-day MA, indicating a potential continuation of the short-term downtrend for gold. Support is seen at $1908, with resistance at $1986.
