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  • Gold bulls have turned cautious after rejection at higher levels. 
  • Fed cheers the doves, pledges to keep the easy policy for extended period.  
  • US economy likely suffered a historic plunge in Q2.
  • Technical set up points to further correction

Gold (XAU/USD) witnessed another attempt to the upside on Wednesday and tested the record highs of $1981.34 after the US Federal Reserve (Fed) struck a dovish tone, as widely expected. The Fed pledged to keep the monetary policy accommodative for an extended period and warned that “the path of the economy will depend significantly on the course of the virus.” The US 10-year real yields dropped to an all-time low of -0.95%, downing the US dollar to fresh two-year lows while boosting the non-yielding gold.

On Thursday, the yellow metal eased, as the Fed’s dovishness lifted the sentiment on the global markets, although the optimism was capped by the US fiscal wrangling and nervousness ahead of the key US Q2 Preliminary GDP report, due later today at 1230 GMT. The US economy is likely to see the steepest contraction (34.1% annualized) since 1929 in Q2 due to the coronavirus pandemic.

Markets have already priced-in the terrible GDP report and dovish Fed. Therefore, the bright metal could likely see “Sell the fact” trading in play on the data release, as the greenback could attempt a comeback amid resurgent safe-haven demand. The focus will also remain on the impending US stimulus talks and fresh virus updates.

Short-term technical outlook

Gold: Hourly chart

fxsoriginal

From a short-term technical perspective, the retracement from post-Fed highs and the subsequent consolidation around $1965 has carved out an ascending triangle formation on the hourly chart. This pattern’s natural tendency is to chart a breakdown.

Having said that, the pattern will get validated should the price close the hour below the rising trendline support at $1957. The immediate cushion is aligned at the horizontal 50-hourly Simple Moving Average (HMA) at $1953.

A break below which the upward sloping 100-HMA at $1937 could likely offer some respite to the XAU bulls. The hourly Relative Strength Index (RSI) has turned south and looks to pierce through the midline from above, indicating that the downside appears more compelling.

At the time of writing, the yellow metal is battling the critical 21-HMA at $1962.65. If the bulls manage to defend the latter, a bounce-back towards the confluence of the record highs and the horizontal trendline resistance just above $1981 cannot be ruled. 

Gold: Additional levels to consider

XAU/USD

Overview
Today last price 1962.52
Today Daily Change -8.93
Today Daily Change % -0.45
Today daily open 1971.45
 
Trends
Daily SMA20 1838.3
Daily SMA50 1775.77
Daily SMA100 1717.1
Daily SMA200 1625
 
Levels
Previous Daily High 1980.89
Previous Daily Low 1941.58
Previous Weekly High 1906.68
Previous Weekly Low 1805.86
Previous Monthly High 1785.91
Previous Monthly Low 1670.76
Daily Fibonacci 38.2% 1965.87
Daily Fibonacci 61.8% 1956.6
Daily Pivot Point S1 1948.39
Daily Pivot Point S2 1925.33
Daily Pivot Point S3 1909.08
Daily Pivot Point R1 1987.7
Daily Pivot Point R2 2003.95
Daily Pivot Point R3 2027.01

 

 

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