Last week I gave a trade idea on XAUUSD with a target around the $2,020 price line. At the time of writing, XAUUSD already exceeded the target and I’m sure that would leave a lot of people wondering what to expect next. Below, I have presented my view of how I expect the price action to turn out in the meantime.
Can a Recession Be Avoided?
2023-04-12 • Updated
Signs of a possible slowdown in the global economy have increased during the last two weeks. The pandemic continues hurting economic activity in China, the war in Ukraine is hitting the entire European economy, and the Federal Reserve's efforts to control inflation threaten to trigger a recession.
China's retail sales, the main measure of consumer activity, fell by 11.1% on an annual basis, compared to forecasts of 6.6%. Industrial production, which supported China's rapid economic recovery from the initial shock of COVID-19, fell by 2.9%.
In Europe, the European Commission expects the EU and Eurozone to expand by only 2.7% this year, well below the previous forecast of 4%. Inflation is likely to rise to more than 6% this year. So the ECB President Christine Lagarde signaled her support for a rate hike next July, paving the way for the Eurozone's first rate hike in more than ten years.
In the US, annual inflation is still at its highest level in 40 years, and there's a significant risk of a recession. This week alone, the former CEO of Goldman Sachs warned of "very, very high risks" of a recession. According to Wells Fargo, there's no doubt that a downturn is looming on the horizon. The former Fed Chairman warned that the US is poised to fall into stagflation, a slowing economy, and high unemployment accompanied by higher inflation. The odds of a recession are currently around 30%, according to the research by Moody's and a Wall Street Journal poll.
What can trigger a recession?
The main concern is that the Fed will raise rates too high too quickly in a short time, killing economic growth. Higher rates curb inflation by making it more expensive to borrow money, making it pricier for consumers to spend on goods and services, and for businesses to grow and hire workers.
If the Fed gets it wrong, a sharp rate hike could halt growth, causing a recession. With the Fed moving aggressively to tame inflation, there's no doubt that a contraction is looming, even if it doesn't develop into a recession.
Can a recession be avoided?
The outlook is not entirely gloomy. Some economic indicators point that the recovery is still on the right track, and the US economy is still on solid ground.
1. Industrial production in the US rose for the fourth consecutive month in April, hitting a 15-year high.
2. US consumer spending, which accounts for two-thirds of economic activity, remains strong, with retail sales growing at a healthy pace in April.
3. The labor market remains strong, as the US added 428,000 jobs in April, above forecasts for the second month in a row. If this pace continues, the US will reach full employment capacity by July.
In the end, despite the growing fears of recession or a downtrend, conditions are still good. For example, we haven't seen mass layoffs yet, which is a sign of recession. Consumer spending, which accounts for about 70% of US economic activity, is still holding up. If there's a sudden slowdown in spending, it will immediately negatively impact. Corporate profits will fall, and employers will start laying off workers to protect their profits. As for the US dollar, the hints of the upcoming recession will be harmful to the currency, while good economic news from America will drive it up.
Commerzbank's analysis suggests a brighter outlook for the New Zealand Dollar (NZD) in the coming months despite recent downward pressure. Factors like broader U.S. Dollar strength and domestic issues have kept the NZD below last year's highs. However, robust labor markets in both New Zealand and Australia and an expected...
The higher-than-expected inflation data for January has reignited concerns about rising prices and its implications for Federal Reserve policy. While investors had anticipated rate cuts in the near term, the hot inflation print may delay such actions. As the Fed navigates the delicate balance between containing inflation and...
On Friday, the gold price (XAUUSD) retreated from a recent two-week high, facing selling pressure. This decline was driven by hawkish minutes from the FOMC meeting, indicating the Fed's reluctance to cut interest rates. Elevated US Treasury bond yields, supported by a "higher-for-longer" narrative, further weakened demand for gold...
Bearish Scenario: Selling below 22.65 with TP1: 22.34 (intraday) and TP2: 22.02 (swing). Bullish Scenario: Buying above 22.70 with TP1: 22.90.
Intraday and swing scenarios based on price action and volume profile.