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XAU/USD bears near $1,650 on hawkish Fed bets, China news

  • Friday’s corrective bounce fades gold prices to lowest levels since April 2020.
  • Sour sentiment joins hawkish expectations from the Fed to weigh on XAU/USD prices.
  • Biden announces support for Taiwan amid China attack, PBOC cuts RRR.
  • While risk appetite is concentrated in Japan and the UK, central banks are slowing.

Gold (XAU/USD) edged lower in Europe early Monday morning near intraday lows around $1,670. In doing so, metal prices were weighed down by a firmer US dollar amid a slower session due to holidays in Japan and the UK. The reason can be linked to hawkish Fed bets and headlines around China.

The US Dollar Index (DXY) snapped a two-day low at 109.85 at press time while printing 0.18% intraday gains. The greenback’s gauge against six major currencies was recently buoyed by upbeat consumer sentiment data from the University of Michigan for September, as well as the market’s optimistic bets on the Fed’s next move. Odds of a Fed rate hike of 75 basis points (bps) rose to 80%, while market expectations for a full percentage point hike in Fed rates rose to 20% in recent days.

Elsewhere, US President Biden said, “I’m more optimistic than I’ve been in a long time.” National leaders have said that they are going to bring inflation under control. Along the same lines, Covid updates from China unlock the cities of Dalian and Chengdu and witness zero coronavirus cases in Beijing as against zero outside the quarantine zone of Shanghai the previous day. However, US President Biden’s readiness to support Taiwan if China attacks Taipei and hawkish promises to the Fed appear to weigh on steel prices ahead of key monetary policy announcements.

Also, the People’s Bank of China (PBOC) will cut the 14-day reverse repo rate by 10 basis points (bps) to 2.15%. “With no reverse repos maturing on Monday, China’s central bank injected 12 billion yuan a day,” per Reuters. The same may indicate that the dragon nation is not in recovery mode and needs more rate cuts than rate hikes, which could sink gold prices. The reason is China’s status as one of the world’s largest gold consumers.

Against this backdrop, S&P 500 futures posted mild losses while tracking Friday’s close on Wall Street. It should be noted that bond movements off Asia in Japan are constrained but yields remain firm near multi-day highs amid recession fears and hawkish Fed expectations.

On the move, light calendar and holidays in major markets may constrain XAU/USD’s intraday movements. However, bears are likely to retain control amid hawkish assurances from the Fed, which, if reneged on, could defy the bearish chart pattern and trigger a long-awaited rebound.

Also Read: Gold Weekly Forecast: Can XAU/USD Gain Traction on 75 bps Fed Hike?

Technical analysis

Gold prices remain in a six-week-old bearish channel, with lower bases of late. In doing so, XAU/USD also reverses the previous day’s upside break of the 10-SMA, around $1,668 as of press time.

Given the metal’s failure to defend an upside break of the short-term SMA within a bearish chart formation, gold bears are likely to retain control. However, recent bullish MACD signals and oversold RSI seem to block the metal’s short-term downside risk around the support line of the said channel, which is close to $1,650 by press time.

Meanwhile, the $1,700 threshold and 100-SMA near $1,720 by press time will immediately lift the quote around $1,710 before challenging the upper line of the bearish chart pattern.

It should be noted that the metal needs a validation from the 200-SMA level around $1,740 to recover gold buyers to the previous $1,720.

Gold: Four-hour chart

Trend: Limited distress expected

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