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XAU/USD remains in bearish channel below $1,700, Fed is in focus

  • Gold prices hovered above 29-month lows on Friday as Fed week began.
  • US data favors Fed rate hike at 75 bps price for traders.
  • Yields bounce off multi-day tops, stocks remain under pressure but DXY bulls remain on radar.
  • Off in Japan, the UK joins a light calendar at home to restrict intraday movements.

Gold (XAU/USD) was steady around $1,675 as Asian traders kicked off an important week featuring the Fed’s monetary policy meeting.

The yellow metal refreshed multi-month lows earlier in the day amid broader US dollar strength, as well as increasingly hawkish calls for the US central bank’s next move, before bouncing back above $1,654. However, recovery moves remain unclear amid market jitters ahead of the daylight calendar and Wednesday’s Federal Open Market Committee (FOMC) meeting.

On Friday, the University of Michigan’s preliminary reading of consumer sentiment for September came in at 59.5, down from market forecasts of 60.0 from 58.6 in the previous month. With the strong US data, odds of a 75 basis points (bps) rate hike by the Fed rose to around 80%, up from around 82% at press time, while market expectations for a full percentage point hike in Fed rates rose to 18. percent

It should be noted that a jump in Chinese treasury purchases and concerns emanating from Beijing and Europe also supported safe-haven demand for the US dollar, weighing on XAU/USD prices. The US dollar index (DXY) dribbled off the 20-year highs marked earlier in the month following robust data and geopolitical chatter.

Additionally, hawkish comments from European Central Bank (ECB) policymakers can also be considered to favor gold prices. “The European Central Bank (ECB) could raise interest rates next year, hurting consumers as it tries to dampen demand, which is now fueling sky-high inflation,” ECB chief economist Philip Lane told Reuters on Saturday. In the same vein, ECB Governing Council member and German central bank chief Joachim Nagel said, “ECB rates are far from inflation-appropriate levels.”

Amid these plays, Wall Street benchmarks closed in the red while US Treasury yields remained firm, favoring the market’s risk-off mood and weighing on metal prices.

Going forward, XAU/USD traders keenly await the Fed’s decision and are likely to favor USD bulls amid hawkish assurances. However, the dot-plot, economic projections and Fed Chair Powell’s speech will be crucial for clear directions.

Technical analysis

Gold price defends a bounce of the support line of the six-week-old descending trend channel, as well as the 61.8% Fibonacci extension (FE) of the April-August moves. In doing so, XAU/USD also warrants a bounce from RSI (14) oversold territory.

However, bearish MACD signals and continued trading above the previous support line from late July, now around $1,694 resistance, keep gold sellers optimistic.

Even if the quote crosses the $1,694 barrier, the 21-DMA and the upper line of the said channel around $1,711 and $1,718, respectively, may challenge the metal’s recovery moves. It should be noted that the downslope resistance line near $1,762 from June 13 appears to be the last line of defense for the bears.

Alternatively, the 61.8% FE and the bottom of the aforementioned channel near $1,694 and $1,650, respectively, are likely to block short-term XAU/USD downside.

Following that, the 78.6% FE level and the four-month-old descending trend line, near $1,622 and $1,590, respectively.

Overall, gold is likely to remain bearish but the downside room will be limited at least intraday.

Gold: Daily Chart

Trend: Limited distress expected

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