Gold, FTSE 100 Forecast: Two trades to watch

XAU/USD holds steady with the Middle East and US CPI in focus

Gold is trading little changed on Wednesday but remains around the 5200 mark as investors continue to assess mixed messages surrounding the Middle East conflict.

Gold rallied in the previous session, boosted by a weaker dollar and falling oil prices. However, Gold has struggled to perform as a traditional safe haven since the start of the Iran war, with investors preferring the US dollar as the safe-haven of choice. As a result of a stronger U.S. dollar, USD-denominated Gold has failed to gain traction.

In addition to ongoing developments in the Middle East, gold traders will also be watching US inflation data today, which is expected to show that US CPI remained unchanged at 2.4% year on year in February, in line with January's reading. Core CPI is expected to remain unchanged at 2.5%.

However, this data will not reflect the impact of higher energy prices, which began in March and coincided with the commencement of the Iran war. As a result, cooler-than-expected inflation may be shrugged off; however, hotter-than-forecast CPI could prompt investors to push back on Federal Reserve rate-cut expectations, lifting the dollar and weighing on Gold.

The market had been expecting the Federal Reserve to cut rates by 25 basis points at the June meeting. However, expectations of hot inflation as energy prices rise have pushed back rate-cut expectations to the third quarter of this year. If oil prices remain persistently high, even that may be premature. Gold, which is a non-yielding asset, often performs better in a low-interest-rate environment, so the prospect of higher rates for longer often keeps gold prices limited.

XAU/USD forecast – technical analysis

XAUUSD has extended its recovery from its 4400 low to a peak of 5420. The price has since eased back to 5185 at the time of writing, but remains above the near-term trendline and the 20 SMA, keeping the uptrend intact.

Buyers will look to rise above the 5200 round number and 5330, the 78.6% Fib retracement of the 5998 high and 4400 low. A rise above here creates a higher high, bringing 5598 and fresh record highs into focus.

Immediate support is seen around 5100, the 61.8% Fib retracement and the 20 SMA. Below here, 5000 comes into play. A break below here creates a lower low, opening the door to4850, the 38.2% Fib retracement.

FTSE falls as BoE rate cuts look less likely & oil volatility remains elevated

The FTSE is falling again on Wednesday as investors lower expectations for further interest rate cuts by the Bank of England this year

While oil prices have fallen from highs of $120.00 per barrel yesterday to $85 per barrel today, this is still over 20% higher in March, which is expected to feed through to the broader economy, adding inflationary pressures. As a result, money markets are now pricing in just a minimal chance of a BoE rate cut this year.

Oil prices fell yesterday after President Trump fueled optimism that the war in Iran could be short-lived. Today, the IEA also proposed releasing 300 to 400 million barrels from reserves. This is a record release to address the impact of the war in Iran, as the Strait of Hormuz remains effectively shut.

Losses on the index are broad-based, with heavyweights such as AstraZeneca, HSBC, and Rolls-Royce leading the move lower.

On the corporate earnings front, Legal & General is falling 6% after its insolvency ratio came in short of expectations, despite the firm reporting higher annual profits and announcing a £1.2 billion share buyback.

Attention will remain on Middle Eastern developments and the oil price. The UK economic calendar is relatively quiet until the GDP data on Friday.

FTSE forecast – technical analysis

The FTSE 100 extended its uptrend to 10,935 record high before rebounding lower. The price broke below the 20 SMA, falling to a low of 10,075 before rebounding higher back above the rising trendline.

The price has failed to hold above the 50 SMA and is once again testing the trendline support. Sellers supported by momentum will look to break below the trendline support to bring 10,000 support zone back into focus. A break below here creates a lower low, opening the door towards 9930, the November high.

Should buyers hold above the rising trendline support, the uptrend remains, and buyers will look towards 10,500.