Gold trading reminder: French election disrupts the situation, gold prices are slightly under pressure, bulls still look to 2450

Spot gold weakened slightly in early Asian trading on Monday (July 8), currently trading around $2,385.69/oz. The unexpected results of the French election over the weekend weakened the euro, providing a rebound opportunity for the US dollar, and gold prices were slightly under pressure. Gold prices extended their gains to their highest level in more than a month on Friday, reaching a high of $2,392.82/oz and closing at $2,390.85/oz, after key U.S. employment data showed that the labor market was weakening, raising expectations of a September rate cut by the Federal Reserve. Tai Wong, an independent metals trader in New York, said, "Gold is trading at a one-month high as the downward revision of non-farm payrolls and another rise in unemployment help to 'consolidate' expectations of a September rate cut." If the Fed starts publicly hinting at a rate cut in September, bulls are eyeing a return to the all-time high of $2,450."

Data showed that U.S. nonfarm payrolls increased by 206,000 in June, slightly higher than the 190,000 estimated by economists. However, the number of new jobs in May was revised down from 272,000 to 218,000, while the number of new jobs in April was revised down from the previous 165,000 to 108,000. The unemployment rate rose to 4.1% in June, slightly higher than the expected 4.0%.

After the data was released, U.S. interest rate futures prices reflected that the market's confidence in a September rate cut was still there, implying The probability remains around 77%.

Traders also believe that the possibility of a second rate cut in December is also rising. Lower interest rates reduce the opportunity cost of holding non-interest-bearing gold.

After the release of the employment data, the US dollar fell to a three-week low against other currencies, making gold denominated in US dollars cheaper for holders of other currencies.

Investors need to pay attention to the further development of the French election this trading day. This week, focus on the congressional testimony of Federal Reserve Chairman Powell and the US June CPI data, and pay attention to news related to the geopolitical situation. Relatively speaking, the current fundamentals and technical aspects tend to support gold prices to break through the 2,400 mark The French election anti-extreme right front worked, the left unexpectedly won but there will be a hung parliament. The second round of French elections on Sunday formed a hung parliament, and the left coalition unexpectedly surpassed the extreme right to become the largest party, so the political parties are facing the arduous task of forming a government. The result is a major setback for Le Pen's nationalist and euroskeptic party, the National Rally, which was predicted to become the largest party in previous polls, but only ranked third. It is also a blow to centrist President Macron. Macron was in the European Union last month. The election was called after a disastrous defeat in the regional parliamentary elections.

The election will divide parliament into three camps - the left, the center and the far right - with very different platforms and no tradition of cooperation. What will happen next is uncertain.

The left, which wants to cap the prices of necessities such as fuel and food, raise the minimum net salary to 1,600 euros a month, increase the salaries of public sector employees and impose a rich tax, immediately expressed its desire to govern.

"The will of the people must be strictly respected... The president must invite the new Popular Front to govern," said Melenchon, the hard-line leader of the left. But the new Popular Front coalition hastily formed before the vote was far from an absolute majority.

The euro fell 0.37% to 1.0798 in early trading on Monday after the vote was predicted on Sunday. "There will be a vacuum in France's legislative capacity," said Simon Harvey, head of foreign exchange analysis at Monex Europe. ”

A key question is whether the left coalition, made up of the hard left, the Greens and the Socialists, can remain united and agree on a future course.

The constitution does not oblige Macron to ask the coalition to form a government, but this is common practice because it is the largest bloc in parliament. Jean-Michel Mélenchon, leader of the hard left France Indomitable (LFI) party, ruled out the possibility of a broad coalition of different parties and said it was Macron's responsibility to invite the left coalition to govern.

According to pollsters' predictions based on preliminary results, Macron's centrists The left-wing coalition "Together" will finish second, ahead of the National Alliance. Pollster Ipsos predicts that the National Alliance will win 120-134 seats in the 577-seat parliament, and its allies will win 14-18 seats. Pollster Elabe predicts that the National Alliance and its allies will win 136-144 seats.

Before the left-wing and centrist alliances cooperated and a large number of candidates withdrew from the election to concentrate votes to block the National Alliance, polls had predicted for several weeks that the National Alliance would win easily.

National Alliance Chairman Jordan Bardella Bardella called the collaboration between the anti-far-right parties, known as the Republican Front, a "shameful alliance" and said it would paralyze France.

Former National Rally leader Marine Le Pen said Sunday's vote sowed the seeds for the future. The National Rally made significant progress in this vote compared with past elections. Le Pen will be the party's candidate for the 2027 presidential election. "Our victory has only been postponed," she said.

Ipsos polls had previously predicted that the left-wing alliance would win 171-187 seats, and Elabe polls showed that the left-wing alliance would win 182-193 seats. There have long been divisions among the parties in the left-wing alliance.

After the voting forecast was released, people cheered and shed tears of relief at a rally in Paris. At the Green Party headquarters, activists cheered and hugged each other.

Macron's entourage did not hint at his next move. A person close to Macron told reporters, "The question we have to ask ourselves tonight and in the next few days is: Which coalition will get 289 seats to govern? ”

Some in Macron’s coalition, including former French Prime Minister Edouard Philippe, envision a broad cross-party coalition but say it cannot include the far-left Indomitable France party.

On the more moderate left, Raphael Glucksmann of the French Socialist Party urged his coalition partners to act like “adults.”

“We are ahead, but we are in a divided parliament,” he said. “We must consult, discuss, dialogue. ”

Official results are trickling in, with most, if not all, constituencies likely to announce their results by the end of the day or early Monday morning (expected between 9am and 12pm Beijing time on Monday).

Voters punished Macron and his governing coalition for a cost-of-living crisis, failing public services, and immigration and security issues.

Le Pen and her party have tapped into those discontents, expanding their appeal beyond their traditional strongholds on the Mediterranean coast and in the country’s northern Rust Belt, but their progress over previous elections has not been enough to win power.

U.S. unemployment rate rises to 2-1/2-year high of 4.1% in June as labor market loses momentum

U.S. job growth was solid in June, but government and health care services accounted for about three-quarters of overall job growth, while unemployment hit a 2-1/2-year high of 4.1%, suggesting slack in the labor market, keeping the Federal Reserve on hold until it is expected to cut rates soon. On the path to start cutting interest rates.

The Labor Department's closely watched jobs report on Friday also showed the U.S. economy created 111,000 fewer jobs in April and May than previously estimated, suggesting a slowing trend in wage gains.

The flashing warning signs in the job market were more pronounced as year-over-year wage growth slowed to the slowest pace in three years amid an expanding labor force. About 277,000 people joined the labor force, pushing the unemployment rate to its highest level since November 2021 from 4.0% in May.

If you look at data showing a slowdown in price pressures in May, the jobs report could bolster Fed policymakers' confidence in the outlook for inflation after a slowing trend was broken in the first quarter. Financial markets expect the Fed, which has been tightening monetary policy aggressively in 2022 and 2023, to start an easing cycle in September.

Scott "We now have solid evidence of a cooling labor market, and the somewhat worrisome rise in unemployment in recent months should give policymakers 'more confidence' that consumer inflation will continue to fall and will soon be able to return to the 2.0% target," Anderson said.

The Bureau of Labor Statistics said nonfarm payrolls increased by 206,000 jobs in June, boosted by government hiring. Economists had expected an increase of 190,000 jobs in June and an unchanged unemployment rate of 4.0%.

In the first half of this year, monthly job gains averaged about 222,000. Analysts estimate that given the recent surge in immigration, the economy needs to create 180,000 to 200,000 jobs per month to keep up with the growth of the working-age population.

The Quarterly Census of Employment and Wages (QCEW) suggests that employment growth will be slower in the fourth quarter of 2023 than the employment report shows. It is a lagging indicator of the job market.

The QCEW data comes from reports submitted by employers to state unemployment insurance (UI) programs. Economists expect the employment data to be revised down when the Bureau of Labor Statistics releases its benchmark estimate of jobs in August for the 12 months ending in March, but they believe the QCEW data does not include illegal immigrants, a group they believe contributed to last year's strong job growth.

According to CME's FedWatch tool, federal funds rate futures traders believe the Fed will raise interest rates between Sept. 17 and Sept. 20. The probability of a rate cut at the meeting on the 18th is about 77%. Traders also believe that the probability of a second rate cut in December is rising.

Average hourly earnings rose 0.3% month-on-month in June, up 0.4% in May. Hourly earnings rose 3.9% year-on-year in June, the smallest year-on-year increase since June 2021, and rose 4.1% in May. People believe that a year-on-year wage increase of 3%-3.5% is in line with the Fed's 2% inflation target.

The household survey used to calculate the unemployment rate showed that employment rebounded by 116,000 in June, but it was not enough to match supply. The unemployment rate rose 0.6 percentage points from a low of 3.5% in July last year.

Fed report: U.S. inflation eases, and the job market has returned to its pre-epidemic state

The Federal Reserve said in a report submitted to Congress last Friday that inflation is easing and the job market has returned to the "tight but not overheated" state before the COVID-19 pandemic plunged the U.S. economy into chaos. The report portrayed the U.S. economy steadily returning to normal after the health crisis.

"Inflation eased significantly last year, and small progress has been made so far this year," the Fed said in its latest monetary policy report submitted to Congress. "In the key area of ​​housing services, it may only be a matter of time before the pace of price increases returns to pre-pandemic levels," the report noted.

Meanwhile, the job market "continued to return to balance in the first half of the year," the report also noted. "Labor demand has moderated as job vacancies have fallen in many parts of the economy, while labor supply continues to increase, supported by a strong pace of immigration."

"The balance between labor supply and demand appears similar to the pre-pandemic situation, when the labor market was relatively tight but not overheated," the report said. Nominal wage increases continue to slow. ”

Fed Chairman Jerome Powell is set to testify before Congress on Tuesday and Wednesday. The central bank’s semiannual report to Congress comes ahead of his appearance.

Job growth has been slowing, with the unemployment rate rising steadily to 4.1% in June from 3.5% in July last year. Inflation, measured by the Fed’s preferred personal consumption expenditures (PCE) price index, remains around 2.6%, a level policymakers still consider “high” but on track to gradually fall back toward their target.

New inflation data is due next Thursday, and if price pressures continue to ease, it could prompt Fed policymakers to open the door to a rate cut at least in September - a decision Powell and his colleagues say will be based solely on economic conditions, not on how it will affect the political prospects of either major party.

Both Democrats and Republicans are likely to grill Powell on the issue, though.

The Fed kept its benchmark interest rate target range at 5.25% at its most recent policy meeting in June - 5.50% unchanged. Policymakers' latest forecasts show they have lowered their expectations for the number of rate cuts this year from three to just one. However, financial markets and some policymakers still expect the Fed to cut interest rates twice by 25 basis points each before the end of the year.

Some congressional Democrats have already challenged Powell on high interest rates, complaining that they have exacerbated already low housing affordability for middle- and low-income families. Republicans, on the other hand, have criticized the Fed's initial slow response to inflation and may embarrass Powell over any signs of lowering interest rates before the November election. (END)

The dollar continued to fall after the release of US employment data

The dollar index fell 0.25% to 104.88 on Friday, marking the fourth consecutive trading day of declines, after data showed that US job growth slowed slightly in June while the unemployment rate rose, which strengthened the view that the Federal Reserve may start cutting interest rates in September.

Investors have been closely watching labor market and inflation data to try to judge when the Fed will start cutting interest rates. US interest rates are currently near 20 highs.

"We have seen Treasury yields fall across the board after the slowdown in the US labor market was confirmed. "The unexpected rise in unemployment, slowing wage gains and downward revisions to overall gains in previous months all suggest that labor market conditions are slowing," said Karl Schamotta, chief market strategist at Corpay in Toronto. "This ... increases the likelihood that we'll see (Fed) Chairman Powell discuss a September rate cut at the July policy meeting or the August Jackson Hole conference."

The U.S. 10-year Treasury yield fell 2.36% on Friday to 4.268%, the lowest close in more than a week.

The labor market has been a focus of the Federal Reserve's debate over when to start lowering interest rates from nearly 20-year highs. The Fed sees the resilience of the job market as a potential catalyst for a possible pickup in inflation.

"It's not a bad report, but because of the big revisions, it shows cracks and weaknesses beneath the surface," said David Wagner, portfolio manager at Aptus Capital Advisors. "This makes it possible for the (Fed) to cut rates at the September meeting." ”

“The downward revisions to the data for the first two months are consistent with a slowing economy,” said Jeffrey Roach, chief economist at LPL Financial. “We should expect the Fed to say more about the state of the labor market and the importance of keeping policy fit for its dual mission.”

Israeli Defense Minister: Even if there is a ceasefire in Gaza, the fight with Hezbollah will continue

Israeli Defense Minister Galant said on the 7th that even if Israel reaches a ceasefire agreement with Hamas in the Gaza Strip, the Israeli army’s fight with Hezbollah in Lebanon will continue.

According to Israeli media reports, Galant said during an inspection of Israeli troops in the Israeli-controlled Golan Heights that day that he had issued clear orders to the Israeli army in the two northern and southern regions of Israel, namely the south and north.They are "two independent regions". Even if the Israeli army reaches an agreement with Hamas on a ceasefire and the release of detained persons in the south, it has nothing to do with the Israeli army's military operations in the north, unless Hezbollah in Lebanon reaches a relevant agreement with Israel.

Technical analysis

From the daily chart, gold prices broke through the key position of 2368.62, the high point of June 21, last Friday. The Bollinger Bands opened after running horizontally, MACD golden cross running, KDJ golden cross running, and gold prices are expected to run upward along the upper track of the Bollinger Bands in the future. The initial resistance reference is the 2400 mark, the resistance of the high point of May 21 is near 2406.01, and then the resistance near the 2420 mark and the historical high of 2450 mark.

The lower 2368.62 has been transformed into a strong support. If it unexpectedly falls below this position, it will weaken the bullish signal in the future.