Gold Price Forecast: XAU/USD set to test 200-DMA at $1,835 on aggressive Fed stance

Gold Price remains vulnerable after Tuesday’s dead cat bounce.
US dollar is set for a big break higher on an increasingly aggressive Fed.
Rejection at 100-DMA recalls sellers, with eyes on the 200-DMA at $1,835.

Dhwani Mehta FXStreet

Gold Price is trading in the red while within Tuesday’s wide trading range, as bears move away on the sidelines ahead of the all-important Fed showdown. With a 50 bps rate hike and the commencement of the Fed’s balance sheet reduction almost a done deal on Wednesday, gold bears need an aggressively hawkish forward guidance to extend the ongoing downtrend. The US dollar stabilizes at higher levels alongside the Treasury yields, awaiting the Fed's hawkish confirmation for the next push higher.

Meanwhile, the market’s cautious optimism, China’s covid resurgence-led lockdowns and its impact on the demand for gold keep the sentiment around the bright metal undermined. No other catalyst seems relevant so far this Wednesday, as pre-Fed anxiety leads the way and the outcome is likely to have a huge impact on the USD valuations, eventually impacting the gold price action in the coming days.

Ahead of the Fed verdict, the US ADP employment data will be eyed for some fresh trading impetus, although the reaction will likely remain limited due to the divergence between the ADP and Nonfarm Payrolls in recent times.

Gold Price Chart: Daily chart

As I predicted on Tuesday, Gold Price did stage a rebound and tested the mildly bullish 100-Daily Moving Average (DMA) at $1,879.

Heading into the Fed, however, the technical setup remains n favor of bears, with the 14-day Relative Strength Index (RSI) inching slightly lower towards the oversold region while below the 50.00 level.

This suggests that gold price could revisit Tuesday’s low of $1,850. On an aggressive Fed policy outlook, hinting at a more than 50 bps hike in June, XAU/USD could accelerate the downside momentum to hit the 200-DMA at $1,835.

If the Fed disappoints the hawks, then gold bulls will likely challenge the 100-DMA again. Acceptance above the latter is needed on a daily closing basis to affirm a bullish reversal from over three-month lows.

The next upside target for buyers is envisioned at Monday’s high of $1,900.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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