Gold Retreats Above 1790 Support Level Amid Softer FED Expectations
- XAU/USD attracts fresh bullish bets on Thursday
- Renewed USD selling provides a goodish lift to the dollar-denominated commodity
- Diminishing odds for a more aggressive FED rate hike in September further benefits the non-yielding metal
XAU/USD pair came under renewed buying pressure on Thursday after attracting bullish bets during the early hours of the Asian session to lift off spot prices from the vicinity of the 1790.29 level. At the time of speaking, the pair is up over 10 pips for the day and has managed to recover part of its early lost ground. The shared currency looks set to maintain its offered tone going forward to the European session and extend the corrective pullback.
Diminishing odds for a more aggressive FED rate hike and signs of stability in the financial markets led to the USD index(DXY) to trim part of its earlier gains and retreat after a strong rally in spot prices seen last evening. This came on the backdrop of the latest lower-than-expected CPI readings. The Odds that the FED will hike by 75bps in September dropped sharply to 32%, from 68% even before the CPI data. This, in turn, triggered a decline in treasury bond yields and was seen as a critical factor that drove flows towards the nom-yielding yellow metal. The Bureau of Labour Statistics reported on Wednesday that the headline US CPI remained flat in July against a dow jones's expectations for a modest 8.7% rise on an annual basis and 0.2% monthly. Even with the lower-than-expected numbers, inflation pressures remained strong.
Additionally, The consumer price index rose 8.5% in July from a year ago, below expectations, due mainly to slumping energy prices. Excluding volatile food and energy prices, so-called core CPI rose 5.9% annually and 0.3% monthly, compared with respective estimates of 6.1% and 0.5%. The numbers indicate that inflation pressures are easing somewhat but remain near their highest levels since the early 1980s and pushed back expectations for an aggressive tightening by the FED, which in turn weighs heavily on the USD. That said, the report was also good news for workers, who saw a 0.5% monthly increase in real wages. Inflation-adjusted average hourly earnings were still down 3% from a year ago.
Going forward, the focus now shifts to the release of the Producer price index(PPI) report MOM for July, in which input prices are expected to have risen by 0.2% MOM in July. The report and broader market risk sentiment would influence USD price dynamics and allow traders to look for trading opportunities around the pair. Traders will further look for cues from the release of the US Initial Jobless claims report scheduled for release during the early north-American session.
XAU/USD Price Analysis: Four-Hour Price Chart
From a technical standstill using a four-hour price, the price has extended the modest rebound from the key demand zone from 1786.07 to 178812. Some follow-through buying would lift spot prices to the upper horizontal trendline of the bullish wedge pattern. The trendline is plotted as from 2nd August and would act as an immediate hurdle against the pair. The said barrier, if broken convincingly, would pave the way for additional gains.
The moving average convergence divergence (MACD) is flat-lined at the moment. Crossover at the 1.21605 level adds credence to our bullish filter. The RSI(14) level at 55.6 is in bullish territory and is not far away from flashing overbought levels hence validating our bullish filter.
On the Flipside, a pullback toward testing the key demand zone ranging from 1786.07 - 178812 followed by a convincing break below the aforementioned support level would negate any near-term bullish bias and pave the way for technical selling. Acceptance below The 20 Exponential Moving Average(EMA) level at 1788.83 would pave the way for more additional losses for the pair.
