GOLDReacts to USD Correction and Fed Rate Hike Expectations

Gold (XAU/USD) experienced significant selling pressure following a brief pullback near $1,970.00 during the Asian session. The precious metal has extended its decline to around $1,932.00 as the US Dollar Index (DXY) recovers and aims to reach a new daily high. Technically, the outlook suggests a bearish continuation for gold, with a potential decline to the 61.8% Fibonacci level at $1,905.50 before a possible pullback and price increase. The fundamental overview indicates that with the return of full market activity on Tuesday, the US Dollar is losing ground in anticipation of positive news on the US debt deal, which is boosting risk sentiment. The US Dollar correction is challenging the 104.00 level against other currencies, accompanied by a 1.70% drop in 10-year US Treasury bond yields. Gold is currently defending the key support level at $1,937. If the risk-on trading sentiment gains momentum, the downward pressure on gold could intensify, especially as the US Dollar correction is expected to be limited due to increased expectations of a 25 basis points rate hike by the Federal Reserve (Fed) in June. Recent strong US economic data and the hawkish outlook on interest rates from Fed officials have contributed to this view. The market is now pricing in a 57% probability of a June Fed rate hike, down slightly from Monday but significantly higher than the 15% probability seen a week ago. Attention will now shift to the release of top-tier US economic data, particularly the US Conference Board Consumer Confidence data. Gold traders will also closely monitor developments regarding the US debt agreement and any relevant commentary from the Fed for further trading guidance.

Comment:

The Gold price (XAU/USD) has seen a resurgence in buying interest, pushing it to refresh its intraday high. This comes as buyers celebrate a two-day winning streak following a period of reaching the lowest levels in 10 weeks. Interestingly, the XAU/USD movement fails to align with the recent rebound in the US Dollar Index (DXY), but instead finds support in the decline of Treasury bond yields. Market participants are eagerly anticipating the US House of Representatives' vote on the debt ceiling agreement, which adds to the market sentiment.

In addition to the debt ceiling vote, investors should closely monitor the release of the Fed's Beige Book and the US JOLTS Job Openings data for April. Moreover, keeping an eye on inflation indicators from the Eurozone is also crucial.

Aside from positioning ahead of data releases and month-end consolidation, the XAU/USD price is benefiting from mixed US economic data and China's willingness to provide further stimulus in the face of sluggish activity figures. Furthermore, the hope that US policymakers will manage to avoid a default and the presence of hawkish Federal Reserve (Fed) expectations present challenges to the Gold price. Despite these factors, the metal remains slightly above a key support level, which coincides with a previous resistance level, suggesting a critical juncture for the market.


Based on our comprehensive technical analysis, we have observed that the Gold price is currently nearing a confluence of signals, which enhances their significance. Firstly, there is the presence of a previous resistance area that now serves as a critical level. Additionally, we can identify the dynamic trendline of a bearish channel, further reinforcing the importance of this price zone.

Furthermore, upon examining the daily chart, we can observe that the price recently underwent a pullback precisely within the 50% - 61.8% Fibonacci retracement areas, derived from the previous swing. This alignment with the Fibonacci levels adds to the significance of the current price action.

Considering all these factors, our forecast for Gold remains bearish. It is important to closely monitor the price movement in this critical area as it can provide valuable insights into the future direction of the market.