XAU/USD weekly fundamental and technical outlook

Fundamental analysis

On Wednesday and Thursday, Federal Reserve Chair Powell was asked numerous questions about inflation and the steps the Fed plans on taking given varying inflation scenarios. On Wednesday, Powell was asked how the Fed could ease supply bottlenecks to which he responded that as the unemployment benefits are close to expiration in the coming months, he will be watching the labor supply closely. If necessary, Powell will overlook the current shortages and inflation, but he does recognize that the labor market will continue to experience a shortage compared to the pre-pandemic levels. Thus, he believes it is still premature for the Fed to taper on its assistance or increase interest rates. 

The following day, Powell maintained his stance on the accommodative monetary policy while providing optimism around the increasing inflation by associating it with the reopening of the economy and stating that it is transitory inflation. He also stated that the talks around tapering will continue at the next Fed meeting on July 27-28, 2021 -- a date many investors are waiting to see the progress in the Fed’s monetary stance. Many economists are also projecting double-digit growth in the economy during the second quarter of 2022. 

Powell’s dovish comments continued XAU/USD’s (Gold) bearish move to the current liquidity area of 1800/1810. Many investors are turning back to the bullion as an inflation hedge as inflation continues to rise at uncomfortable levels beyond expectations. 

Technical analysis

Since August 2020, XAU/USD has been maintaining a bearish structure and creating lower highs and lower lows as talks around the world started to emerge about economies reopening and international travel re-commencing. After a massive sell-off from 1900 on May 2021, the price created support at 1760, collected orders, and pushed bullish as concerns around inflation, the new COVID-19 variant, and global tensions increased. From a technical perspective, the price pushed bullish to correct the bearish momentum to the left. After consolidating for a week, the price pushed bullish to 1830, created a resistance, and pulled back to the 1800/1810 zone. 

In the coming week, investors will be looking for fundamentals and market sentiment surrounding inflation, consumer confidence, and PMI data.