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Gold Remains Flat in the Day Below $1260

Gold Remains Flat in the Day Below $1260. XAU/USD finds support around $1250 on Thursday.
Wall Street remains in positive territory.
The US Dollar Index remains above 94 above the FOMC minutes.
The XAU/USD pair recorded gains for the second day in a row on Wednesday, but lost momentum as improved market sentiment affected demand for precious metals, which is considered a safe asset. After falling towards the $1250 level, the pair found support and erased its daily losses to become flat near the $1257 level, where it is now moving sideways.

With investors returning after the Independence Day holiday, the major U.S. stock indices started the day on a positive note and maintained their bullish momentum. At the time of writing, the Dow Jones Industrial Average and the S&P 500 had risen by 0.7% and 0.75% respectively.

On the other hand, following the release of mixed macroeconomic data by the U.S., the US Dollar Index failed to recover from its daily decline as investors took a back seat before the FOMC minutes. According to ADP data, private sector employment increased less than expected in June, while both the ISM and the PMI Markit revealed that service sector activity grew faster than expected.

It will be interesting to hear the FOMC’s view on the Trump administration’s trade policy. A cautious tone could trigger a flight to safety and help the couple gain traction. On the other hand, the likelihood of an interest rate hike in September could increase in an aggressive tone, which would help the dollar strengthen against its rivals and make it difficult for the pair to hike.

Technical Levels to Consider

Immediate resistance for the pair is lined up at $1260 (July 4) ahead of $1267 (20-DMA) and $1272 (June 24). On the negative side, supports could be seen at $1250 (daily minimum), $1245 (June 28 minimum) and $1239 (July 2 minimum).

On Thursday morning in Asia, global currencies were traded unchanged, while traders patiently waited for Friday’s deadline in Washington to impose $34 billion in tariffs on Chinese imports.
On Wednesday, China’s finance ministry announced that it will not pre-empt Washington’s tariffs, but will wait to see if anything changes before retaliating.

The euro rose by a modest 0.03 percent to trade at 1.1659 dollars at 10:13 a.m. HK/SIN. Against the Japanese yen, the dollar fell 0.04 percent to 110.41. The Chinese yuan, which recorded its lowest level in 11 months against the dollar on Tuesday and which has been carefully watched by traders as trade tensions increased and the People’s Bank of China reflected on the need for intervention, also remained stable. The dollar index remained unchanged at 94.53.DXY.

In commodity markets, oil prices fell on Thursday after US President Donald Trump once again called on the world’s major oil producers to increase supply. Trump tweeted that “The OPEC Monopoly {sic} must remember that gasoline prices are rising and are doing little to help. […] LOWER PRICES NOW.” U.S. WTI crude futures were trading at $73.85 per barrel, down 29 cents per barrel. Brent dropped 59 cents per barrel to $77.65 per barrel, a decrease of 0.75 percent.

On Saturday, President Trump announced a new deal with Saudi King Salman that Saudi Arabia would increase its market output at its own discretion, a term that left it vague, as King Salman did not publish any specific production targets.

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Trump fails to lower oil prices

The lack of response by US crude oil to President Donald Trump’s demand that the Organization of Petroleum Exporting Countries reduce its prices earlier this week has added to the evidence that a new upward movement is possible once the current period of consolidation is over.

However, the market response was minimal given the continuing threat of U.S. sanctions against Iran and a reported threat by Iranians to close the Strait of Hormuz, which connects the Persian Gulf with the Gulf of Oman and is an important shipping route for oil.

Why the price of crude oil in the U.S. could go even higher

Trump’s problem is that spare production capacity in the oil market is limited, and U.S. crude oil inventories remain relatively low. Data released Thursday by the US Department of Energy showed that reserves rose unexpectedly: 1.25 million barrels in the week to June 29, rather than the 3.54 million drop expected by analysts.

However, the rise was much smaller than the 9.89 million drop recorded the week before and while crude oil prices fell with the news, they soon moved away from the day’s lows. The reaction of the oil price to the latest shoots of the US-China trade war has also been limited, suggesting that the underlying strength of the market remains intact.

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