Gold, XAU/USD – Price Action & Outlook:
- XAU/USD’s rally is losing steam as it ran into stiff resistance.
- Key focus is now on the US Fed, ECB, and BOJ policy meetings/rate decisions.
- What is the outlook and what are the key levels to watch in XAU/USD?
Gold’s rally appears to be losing steam ahead of the US Federal Reserve, the European Central Bank, and the Bank of Japan policy meetings, raising the risk that the rebound this month is corrective.
The US Federal Reserve is widely expected to hike interest rates one last time by 25 basis points on Wednesday, but the accompanying statement will be closely watched. A hawkish hike could provide support to the US dollar globally and weigh on gold. A more data-dependent / ‘wait-and-watch’ could put USD and gold back within their recent ranges, whereas a dovish hike could exert downward pressure on USD, aiding XAU/USD.
In terms of sensitivity of the potential move, if the recent USD performance is anything to go by, a dovish hike by the Fed could weigh on USD more than the other two scenarios. For more on the sensitivity, see “Gold Jumps After Tepid US Retail Sales; What’s Next for XAU/USD After Reverse H&S Target Met?”, published July 19.
XAU/USD 240-minute Chart
Chart Created by Manish Jaradi Using TradingView
The European Central Bank is also expected to raise its benchmark rate by 25 basis points on Thursday and stay will likely stay hawkish. However, recent comments from ECB officials that a September rate hike is not a done deal raise the risk of a dovish hike. Meanwhile, the Bank of Japan is expected to keep its ultra-easy monetary policy at its meeting on Friday.
XAU/USD Daily Chart
Chart Created by Manish Jaradi Using TradingView
On technical charts,as highlighted in the previous update, XAU/USD has met the price objective of the minor reverse head & shoulders pattern of about 1980 that was triggered earlier this month. However, the yellow metal appears to be succumbing to a tough hurdle at the early-June high of 1983, slightly below the upper edge of the Ichimoku cloud on the daily charts.
If the nascent rebound from the end of June were to continue, then XAU/USD needs to stay above converged support, including the mid-July low of 1945 and the 200-period moving average on the 240-minute charts.
A failure to do so would confirm the one-month-long rebound was corrective, exposing downside risks toward the June low of 1893, possibly lower. Retail trader data shows about 69% of traders are net-long gold. The IG Client Sentiment data is typically used as a contrarian indicator to crowd sentiment, suggesting XAU/USD risks further weakness.
--- Written by Manish Jaradi, Strategist for DailyFX.com
--- Contact and follow Jaradi on Twitter: @JaradiManish
