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Abstract: According to data released by the U.S. Bureau of Labor Statistics on Tuesday, the current annual inflation rate in the U.S. is 4%, which is the lowest level since March 2021. Despite this, a key price indicator closely watched by the Fed is still rising at a worrying rate. The core CPI rose by 0.4% for the third consecutive month, which is in line with expectations.

Fundamentals

According to data released by the U.S. Bureau of Labor Statistics on Tuesday, the annual inflation rate in the U.S. in May dropped from 4.9% in April to 4.0%, which was lower than the market expectation of 4.1%, and was the lowest level in two years. The annual growth rate of core CPI is 5.3%, which is in line with market expectations. Both CPI and core CPI slowed down year-on-year, highlighting the decline of inflation since it peaked last year.

According to CME's "FedWatch": After the release of CPI data in May, the probability of keeping interest rates unchanged at the Fed's interest rate meeting in June rose to 95.3%, and the probability of raising interest rates by 25 basis points dropped to 4.7%; The probability of maintaining interest rates at the current level by July is 33.9%, the probability of raising interest rates by 25 basis points is 63.1%, and the probability of raising interest rates by 50 basis points is 3.0%.

According to the data released today, the inflation rate has dropped by more than half compared with last year's peak, and the price increase is currently increasing at the slowest rate since March 2021, but it is still far higher than what Fed officials hope to see at this week's meeting. The market believes that core prices can better predict future inflation, but they are still at a high level at present, partly because the soaring housing rental prices continue to be reflected in the inflation data.

There is still a lot of debate within the Fed about how much more we need to do. When talking about the slowdown in price increases, the Fed may need time to assess whether its interest rate policy and banking pressure have exerted sufficient downward pressure on prices. It is still possible for the Fed to raise interest rates twice this year, which the market has not yet digested.

In our view, the current market expectation of suspending interest rate hikes is too stable, and the Fed doesn't want to surprise investors. However, since core inflation is still too sticky, it is expected that the Fed's next move will be to raise interest rates again in July, and then it may raise interest rates again. The current market expectation is that the Fed will cut interest rates later this year after suspending interest rate hikes on Thursday and raising interest rates by 25 basis points in July.

Technical Analysis

After hitting an all-time high of US$2,079 in early May, the price of gold experienced a staged correction and successfully stopped falling at the level of US$1,932 at the end of May. However, in the past three weeks, it has been in a state of consolidation, failing to present a convincing trend continuation.

However, in the recent structural adjustment, the gold price showed signs of a stop of the downtrend in the "elevation angle" of the triangle consolidation but failed to wait for a convincing rally. This means that the bulls need a strong catalyst to push prices significantly higher than US$1,990 in search of a test of the Wave 4 structure.

The current momentum indicators show that the bearish strength is fading. Specifically, the fast EMA and slow EMA of the MACD cross upward from the bottom, but they are still in the negative range, while the stochastics show an upward trend after the bullish cross is released.

If the buying pressure intensifies, the bulls may directly break through the level of US$1,985, which is the upper limit of the recent range fluctuation pattern. Before the US$1,999 is tested, the US$1,993 will be easily broken.

On the other hand, if the short-term weakness persists, the price may initially challenge the recent low of US$1,932. If this level collapses, the focus will directly shift to the level of US$1,860, and then retest the bottom of US$1,804 in 2023.

Overall, gold prices have been directionless for the past three weeks, but short-term oscillators are slowly tilting in a bullish direction. Therefore, as long as the bottom at US$1,932 is not broken, it is still recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 1950

Target price: 1999

Stop loss: 1930

Deadline: 2022-06-27 23:55:00

Support: 1947, 1939, 1932

Resistance: 1964, 1968, 1985