Gold Price Analysis: XAU/USD consolidtaed ahead of critical NFP

Gold Price Analysis: XAU/USD consolidtaed ahead of critical NFP

Gold is consolidated in bullish territory ahead of NFP.

The US dollar is on the backfoot and testing critical support.

The gold price has been consolidating in relatively bullish territory ahead of tomorrow's Nonfarm Payrolls.

At the time of writing, XAG/USD is holding flat at $1,809, supported by a soft US dollar.

The greenback was weakened again on Thursday following stronger labour market data and after European Central Bank policymakers continue to turn the screw with respect to inflation concerns in focus.

The prospects of convergence between the ECB and the Federal Reserve are creeping their way to the fore and weighing on the greenback.

Inflation worries persisted following data on Tuesday which showed eurozone inflation increased to 3% year-on-year in August, the highest in a decade and above the European Central Bank's 2% target, as well as the 2.7% Reuters forecast.

The hawkish switch came last week when ECBs Philip Lane spoke at the Jackson Hole last Friday.

He basically was promising the ECB would calibrate the QE program to financial conditions BOTH in an upwards and in a downwards direction.

This currently means that the recent new all-time lows seen in EUR real rates could be used as an argument to tone down PEPP-purchases, potentially as soon as September.

The last ECB staff update to economic projections disappointingly kept CPI stuttering around 1.5% at the end of their forecast period. Therefore next week‘s quarterly updates will be even more acutely monitored for signs of upside potential for CPI as well as appraisal of the region’s recent strong reopening recovery, analysts at Westpac explained.

“The combination of a pullback in recent USD strength and the potential ECB shift is opening the potential for EUR/USD to push back to retest 1.20-1.21 area from what now appears to be a solid base below 1.17,” the analysts added.

Considering the bulls failed to close above 93.50 last week nor for month-end, should the NFP data really disappoint and sentiment shift to a more hawkish ECB, the DXY could be looking into the abyss from a longer-term perspective.

The US dollar, as measured against a basket of currencies in the DXY index ended around near to 92.20 overnight:

This is a significant development considering the market structure and ahead of Nonfarm Payrolls on Friday.

On Wednesday, the ADP National Employment Report was much weaker than expected and could be regarded as a prelude to today's report.

Nonfarm Payrolls are expected to rise by 750,000, with the Unemployment Rate anticipated to dip to 5.2% from 5.4%, according to Reuters estimates.

Gold technical analysis

Bulls are looking for a move above $1,834, propped-up at trendline support.