The deal to reopen the US government failed to lift USD sentiment as traders are shifting their focus to the upcoming Fed meeting. The bearish expectations are feeding into a broad-based dollar selloff, which in turn fuels an aggressive rally in the precious metal. On Monday, the bullion registered fresh six-month highs above the key psychologically important level of $1.300 which now stands as the immediate support.
Investors expect that the Federal Reserve will signal a pause in its tightening cycle on Wednesday, citing economic and probably political risks. A more cautious tone is priced in already but could increase the selling pressure on the greenback, depending on the tone of the Fed’s official statement. In this scenario, gold may proceed with the rally despite the oversold conditions in the short-term charts.
As for the current picture, the USD bearish pressure has abated now, in part due to a cautious optimism ahead of a new round of trade talks between the US and China this week. Another event that will affect the dollar direction in the days to come is the US NFP employment report due on Friday. Weaker than expected figures could add to the upside pressure in gold prices, but the bullion is yet to confirm a bullish breakthrough and avoid a wave of profit-taking after a strong rally.