Gold Price Forecast: XAU/USD confirms a trading range breakout ahead of FOMC decision

Gold price consolidated the previous day's strong gains and oscillated in a narrow trading band just below the $2,020 level, or a two-and-half-week high touched during the Asian session on Wednesday. Traders now seem reluctant to place aggressive bets and prefer to wait for the outcome of a two-day Federal Open Market Committee (FOMC) meeting. The Federal Reserve (Fed) is scheduled to announce its policy decision at 18:00 GMT later today and is widely expected to hike interest rates by 25 basis points (bps). The markets, however, remain uncertain over a potential pause in the Fed's policy tightening cycle as inflation in the United States (US) is still trending well above the central bank's target range. Hence, investors will closely scrutinize the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference for clues about the next move. This, in turn, will play a key role in influencing the XAU/USD and help determine the next leg of a directional movement.

Meanwhile, the downside for the Gold price remains cushioned amid renewed fears of a full-blown banking crisis and worries about a US debt default. The optimism over the government-brokered takeover of First Republic Bank by JP Morgan fizzles out rather quickly in the wake of concerns that several other regional US lenders were facing solvency issues. This led to the overnight rout in the US bank stocks. Furthermore, the US Treasury Secretary Janet Yellen warned that the world’s largest economy faces a June 1 deadline to meet its obligations. The warning came as Republican and Democratic lawmakers clashed over how much to raise the Congressional debt limit. This triggered a flurry of selling in the US equity markets on Tuesday, and the spillover effect dragged Asian stocks lower on Wednesday. Apart from this, the ongoing US Dollar (USD) retracement slide from a three-week high touched the previous day lends support to the safe-haven XAU/USD ahead of the key central bank event risk and important US macro data.

Wednesday's US economic docket highlights the release of the ADP report on private-sector employment and the ISM Services PMI. The immediate market reaction, however, is more likely to be limited as the focus remains glued to the highly-anticipated FOMC policy decision. The market attention will shift to the release of the official US monthly jobs data, popularly known as the Nonfarm Payrolls (NFP) report, on Friday. This, in turn, will drive the near-term USD price dynamics and provide a fresh directional impetus to Gold price.

Technical Outlook

From a technical perspective, the overnight sustained move and acceptance above the $2,010-$2,012 supply zone could be seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have just started gaining positive traction and are still far from being in the overbought zone. This supports prospects for a further near-term appreciating move towards the $2,039-$2,040 region, above which Gold price could aim to challenge the YTD peak, around the $2,048-$2,049 region touched on April 13. A sustained strength beyond the latter will set the stage for a move towards the 2022 swing high, around the $2,070 region and the $2,074-$2,075 zone, or the all-time high set in August 2020.

Conversely, the $2,000 psychological mark now protects the immediate downside. Any subsequent downfall might continue to attract fresh buyers near the $1,980 horizontal level and find decent support near the $1,970 area. That said, some follow-through selling might shift the near-term bias in favour of bearish traders and make the Gold price vulnerable to accelerate the slide towards the $1,948 resistance breakpoint, now turned support. The downward trajectory could get extended towards the upward-sloping 50-day Simple Moving Average (SMA), currently around the $1,942 area, which, if broken, will expose the $1,900 round-figure mark. The handle coincides with the 100-day SMA and should be a strong base for the XAU/USD.