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Gold drops to $1270 as DXY surges to 94.80 on upbeat PMI data

  • Service sector business activity gathers momentum in the U.S.
  • Unemployment drops to 4.1% as NFP rebounds sharply.
  • DXY gains traction and turns positive on the day.

Following the initial short-winded upsurge to the $1280 region in the early NA session, the XAU/USD pair came under pressure in the last hour and lost around $10. At the moment, the pair is trading at $1270, down 0.45% on the day.

Greenback gains strength as data points to robust economy

Although the US Dollar Index dropped to 94.30 after today's employment report from the U.S. showed a weaker-than-expected wage growth, it didn't take long for the index to turn positive. Despite the soft wage inflation, the unemployment rate dropped to its lowest level in 17 years at 4.1% while the nonfarm employment growth rebounded to 261K from 18K in October. Moreover, the PMI data released by the ISM and Markit Economics showed that the non-manufacturing business activity expanded at a fast pace. At the moment, the DXY is at 94.80, adding 0.2% on the day. On a weekly basis, the index will record modest gains if it closes around this level.

In the meantime, despite a slightly lower start to the day, major equity indexes in the U.S. are now recovering their losses with the Dow Jones Industrial Average and the S&P 500 both virtually turning nearly flat as of writing, pointing to an improved market sentiment, which underpins the demand for the traditional safe-haven gold.

Technical levels to consider

The 200-DMA, which is located at $1266 is the next critical support for the pair. A weekly close below that level could allow the sellers to take control of the price action. $1260 (Oct. 6 low) and $1251 (Aug. 8 low) align as the next technical supports. On the upside, resistances could be seen at .$1281 (20-DMA), $1291 (Oct. 19 high) and $1300 (psychological level). With today's drop, the CCI indicator on the daily graph turned negative below the 0 mark, suggesting that the bearish momentum is building up.

Today's data from the US

  • US: Service sector business activity growth remains strong in October - Markit
  • US: Total nonfarm payroll employment rose by 261,000 in October
  • US: Goods and services deficit at $43.5 bln in Sep, up $0.7 bln from $42.8 bln in Aug
  • US: ISM non-manufacturing PMI rises to 60.1 in October from 59.8 in September

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