Gold experienced a dip during the European session, followed by a rebound as the US session gained momentum. The Dollar Index (DXY) and US Treasury yields had initially exerted downward pressure on Gold prices following a hawkish message from Fed Chair Jerome Powell.
Fed Projections and Dollar Index
The US Federal Reserve’s recent actions have indeed lived up to expectations of a ‘hawkish’ pause, especially with adjustments to the dot plot that have raised eyebrows. In June, projections for 2024 suggested 100 basis points (bps) of cuts, but now, it shows only 50 bps of cuts for next year. It’s worth noting that Fed Chair Powell emphasized that these projections are not set in stone and may be adjusted as needed.
The DXY rallied sharply, closing with a hammer candlestick on the daily chart, while US Treasury Yields surged, further weighing on Gold prices. However, the Dollar index is currently retreating from a critical area of resistance.
Looking at the daily chart of the DXY, it spiked above the key resistance around 105.63 but has since pulled back to around 105.30 at the time of writing. The daily candle appears to be forming a shooting star pattern, suggesting potential downside. However, it’s important to note that the theme of 2023 has been marked by a lack of conviction, and the technical indicators of the DXY reflect this uncertainty.
While the 100-day and 200-day moving averages (MAs) are on the verge of forming a golden cross pattern, typically indicating bullish momentum, the price action suggests the possibility of a deeper retracement. This discrepancy highlights the current lack of clarity regarding longer-term moves, making shorter-term outlooks more attractive in the present climate.
Upcoming Risk Events
The major risk events for the week, particularly concerning the US Dollar, have largely concluded. The upcoming S&P Global PMI data and some Fedspeak may lead to short-term spikes depending on their nature, but they are not expected to be major market-moving releases.
Gold Technical Outlook
From a technical standpoint, Gold prices saw a positive week leading up to the FOMC meeting after breaking out of an inner descending trendline last week. The rally gained momentum earlier in the week as the DXY stalled ahead of the Fed decision. Gold reached a crucial confluence zone around the $1945 mark, coinciding with the Fed rate decision, before initiating a significant pullback.
The pullback accelerated, with Gold dropping below the 50-day moving average (MA) and currently trading below the 200-day MA around $1924. Having formed a lower high recently, price action suggests the potential for a renewed push below the $1900 psychological level. If Gold drops below $1900, the next significant support area lies around the recent lows at $1886 per ounce.
However, the evolving sentiment and the lack of sustained market direction should be noted. This uncertainty may continue into the coming days and weeks. Therefore, it’s advisable to avoid firmly committing to a bias at this stage, as significant surprises in upcoming data could lead to short-term volatility, affecting any long-term directional bias.
IG Client Sentiment
Taking a glance at IG Client Sentiment, it’s notable that retail traders are overwhelmingly long on Gold, with 74% holding long positions. Adopting a contrarian view to crowd sentiment, this could raise questions about whether Gold may continue to face downward pressure.
