Gold Weekly Forecast: XAU/USD bulls defend $1,700 ahead of FOMC meeting
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UPGRADE- Gold registered weekly gains for the first time since early February.
- USD's market valuation remains the primary driver of XAU/USD movements.
- Key resistance aligns at $1,745 as experts remain bearish in the near-term.
The XAU/USD pair edged lower on Monday and touched its lowest level since early June at $1,676. However, with the greenback coming under strong selling pressure, the pair staged a decisive rebound and gained more than 3% in a three-day span to touch a weekly high of $1,739. Although gold struggled to preserve its bullish momentum toward the end of the week, in managed to snap a three-week losing streak and rose more than 1% to close around $1,720.
What happened last week
At the start of the week, the data from China revealed that Exports in February surged by 60.6% on a yearly basis and beat the market expectation for an increase of 38.9% by a wide margin. On a negative note, Germany’s Destatis reported on Monday that the Industrial Industriction in January contracted by 2.5% on a monthly basis.
On Tuesday, the monthly report published by Eurostat showed that the annual Real Gross Domestic Product (GDP) in the euro area declined by 4.9% in the fourth quarter. This reading came in slightly better than analysts’ estimate for a contraction of 5% but failed to trigger a meaningful market reaction.
The US Bureau of Labor Statistics announced on Wednesday that inflation, as measured by the Consumer Price Index (CPI), edged higher to 1.7% in February on a yearly basis as expected. The Core CPI, which strips volatile food and energy prices, however, ticked down to 1.3% from 1.4% in January.
Nevertheless, investors paid little to no attention to these data releases with the focus remaining on the US Treasury note auctions. On Wednesday, the US sold $39 billion worth of 10-year notes at a high yield of 1.523%, compared to 1.155% in the previous auction, and awarded 27.17% of bids at the high. The decent demand seen at this auction forced the benchmark 10-year US T-bond yield to fall sharply and weighed on the USD. On Thursday, the US Dollar Index fell to its worst level since March 4 at 91.36 and XAU/USD extended its recovery to $1,739.
Meanwhile, the US Department of Labor’s weekly publication showed that the Initial Jobless Claims fell to the lowest post-pandemic level of 712K in the week ending March 4. With risk flows starting to dominate financial markets on the back of this upbeat data, the S&P 500 Index climbed to a new all-time high on Thursday and put additional weight on the greenback’s shoulders.
On Friday, the negative shift seen in the risk sentiment and a strong recovery in the US Treasury bond yields forced XAU/USD to turn south. The pair erased a large portion of its weekly gains and declined below $1,700 during the European trading hours but didn't have a tough time erasing its daily losses.
Next week
On Monday, Industrial Production and Retail Sales data from China will be looked upon for fresh impetus. However, the market reaction to Chinese data has been relatively muted lately no matter how large the divergence was from the market consensus and there is no reason to expect to see an exception this time around.
On Tuesday, Industrial Production and Retail Sales data will be featured in the US economic docket. A stronger-than-expected increase in Retail Sales could provide a boost to market sentiment and weigh on USD.
Most importantly, the US Federal Reserve will announce the Interest Rate Decision and publish its updated Economic Projections on Wednesday. Earlier in the month, FOMC Chairman Jerome Powell reiterated that they are committed to using their tools until they reach their inflation and employment goals. Regarding the financing conditions in the bond market, Powell largely downplayed the issue of surging bond yields, causing the USD to find demand on the back of rising yields. Investors don't expect to see any changes to the Fed's policy settings but the Q&A session could trigger sharp fluctuations in T-bond yields and impact the greenback market valuation. If yields turn south, XAU/USD is likely to extend its rebound and vice versa.
Gold technical outlook
On the daily chart, the Relative Strength Index (RSI) indicator is moving sideways around 40, suggesting that XAU/USD is in a consolidation phase following the latest decline. On the upside, $1,745 (Fibonacci 38.2% retracement of February-March drop, 20-day SMA) aligns as key resistance. A daily close above that level could open the door for additional gains toward $1,765 (Fibonacci 50% retracement).
The first support could be seen at $1,700 (psychological level, March 12 low). If sellers manage to drag the price below that level, $1,676 (ending point of February-March drop) could be seen as the first target before $1,670 (June 1, 2020, low).
Gold sentiment poll
Despite this week's rebound, 58% of experts that participate in the FXStreet Forecast Poll remain bearish in a one-week view with an average target of $1,686. Similarly, the one-month view shows that gold is largely expected to remain below $1,700 before staging a rebound toward the beginning of the third quarter.
- Gold registered weekly gains for the first time since early February.
- USD's market valuation remains the primary driver of XAU/USD movements.
- Key resistance aligns at $1,745 as experts remain bearish in the near-term.
The XAU/USD pair edged lower on Monday and touched its lowest level since early June at $1,676. However, with the greenback coming under strong selling pressure, the pair staged a decisive rebound and gained more than 3% in a three-day span to touch a weekly high of $1,739. Although gold struggled to preserve its bullish momentum toward the end of the week, in managed to snap a three-week losing streak and rose more than 1% to close around $1,720.
What happened last week
At the start of the week, the data from China revealed that Exports in February surged by 60.6% on a yearly basis and beat the market expectation for an increase of 38.9% by a wide margin. On a negative note, Germany’s Destatis reported on Monday that the Industrial Industriction in January contracted by 2.5% on a monthly basis.
On Tuesday, the monthly report published by Eurostat showed that the annual Real Gross Domestic Product (GDP) in the euro area declined by 4.9% in the fourth quarter. This reading came in slightly better than analysts’ estimate for a contraction of 5% but failed to trigger a meaningful market reaction.
The US Bureau of Labor Statistics announced on Wednesday that inflation, as measured by the Consumer Price Index (CPI), edged higher to 1.7% in February on a yearly basis as expected. The Core CPI, which strips volatile food and energy prices, however, ticked down to 1.3% from 1.4% in January.
Nevertheless, investors paid little to no attention to these data releases with the focus remaining on the US Treasury note auctions. On Wednesday, the US sold $39 billion worth of 10-year notes at a high yield of 1.523%, compared to 1.155% in the previous auction, and awarded 27.17% of bids at the high. The decent demand seen at this auction forced the benchmark 10-year US T-bond yield to fall sharply and weighed on the USD. On Thursday, the US Dollar Index fell to its worst level since March 4 at 91.36 and XAU/USD extended its recovery to $1,739.
Meanwhile, the US Department of Labor’s weekly publication showed that the Initial Jobless Claims fell to the lowest post-pandemic level of 712K in the week ending March 4. With risk flows starting to dominate financial markets on the back of this upbeat data, the S&P 500 Index climbed to a new all-time high on Thursday and put additional weight on the greenback’s shoulders.
On Friday, the negative shift seen in the risk sentiment and a strong recovery in the US Treasury bond yields forced XAU/USD to turn south. The pair erased a large portion of its weekly gains and declined below $1,700 during the European trading hours but didn't have a tough time erasing its daily losses.
Next week
On Monday, Industrial Production and Retail Sales data from China will be looked upon for fresh impetus. However, the market reaction to Chinese data has been relatively muted lately no matter how large the divergence was from the market consensus and there is no reason to expect to see an exception this time around.
On Tuesday, Industrial Production and Retail Sales data will be featured in the US economic docket. A stronger-than-expected increase in Retail Sales could provide a boost to market sentiment and weigh on USD.
Most importantly, the US Federal Reserve will announce the Interest Rate Decision and publish its updated Economic Projections on Wednesday. Earlier in the month, FOMC Chairman Jerome Powell reiterated that they are committed to using their tools until they reach their inflation and employment goals. Regarding the financing conditions in the bond market, Powell largely downplayed the issue of surging bond yields, causing the USD to find demand on the back of rising yields. Investors don't expect to see any changes to the Fed's policy settings but the Q&A session could trigger sharp fluctuations in T-bond yields and impact the greenback market valuation. If yields turn south, XAU/USD is likely to extend its rebound and vice versa.
Gold technical outlook
On the daily chart, the Relative Strength Index (RSI) indicator is moving sideways around 40, suggesting that XAU/USD is in a consolidation phase following the latest decline. On the upside, $1,745 (Fibonacci 38.2% retracement of February-March drop, 20-day SMA) aligns as key resistance. A daily close above that level could open the door for additional gains toward $1,765 (Fibonacci 50% retracement).
The first support could be seen at $1,700 (psychological level, March 12 low). If sellers manage to drag the price below that level, $1,676 (ending point of February-March drop) could be seen as the first target before $1,670 (June 1, 2020, low).
Gold sentiment poll
Despite this week's rebound, 58% of experts that participate in the FXStreet Forecast Poll remain bearish in a one-week view with an average target of $1,686. Similarly, the one-month view shows that gold is largely expected to remain below $1,700 before staging a rebound toward the beginning of the third quarter.
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