- Gold holds above the psychological level of $ 1,800 in the Fed’s Powell countdown on Friday.
- The US dollar consolidates ahead of the event, licking critical DXY support near 92.80.
Update: Gold (XAU / USD) extends yesterday’s weakness to refresh intraday low around $ 1,795, down 0.45% on an early Wednesday. In doing so, the yellow metal bears the brunt of the rebound in the US Dollar Index (DXY) amid a sluggish Asian session.
Behind the DXY race to regain the 93.00 level may lie the cautious mood in the market ahead of the key Jackson Hole Symposium as well as today’s important data, namely durable goods orders in the United States. for July, forecast -0.3% against + 0.9% previously.
In addition, worsening viral conditions in developed countries are also weighing on gold prices. Australia is refreshing record infections as New Zealand covid cases and US hospitalizations have also jumped in recent times. It should be noted that vaccine optimism is key to tackling the pandemic, but many leading economies are struggling to get bitten.
Therefore, covid woes and pre-data / event mood can support safe-haven demand for the US dollar, which in turn can boost gold prices.
Gold rose slightly on Tuesday and now sits comfortably between critical support and resistance levels on the charts.
Risk sentiment improved, with investors noting a potential high in growing cases of the highly contagious delta variant.
Gold is currently trading where it left off at the Wall Street close, near $ 1,805 in a range of $ 1,800.86 / $ 1,809.60 which narrowed Wednesday to between 1,801. $ 99 / $ 1,803.12 so far.
The US dollar was held back this week, limited by an upward support trendline near 92.80 and the 93.725 highs printed last week (see DXY technical analysis below).
That being said, much will depend on the outcome of Federal Reserve Chairman Jerome Powell’s opening address on Friday at the Jackson Hole.
Traders are eagerly awaiting Powell’s speech for the next clues on the tap.
Doing so could trigger a mini tantrum that should support the greenback and weigh on all risk appetite assets like precious metals.
On the flip side, the Fed has done a very good job communicating with the markets throughout the pandemic and as such one would expect the same from Jackson Hole.
In this regard, analysts at TD Securities see “little chance of an announcement and instead expect the president’s speech to echo the last minutes of the July meeting, suggesting that the reduction in QE is likely by the end of the year, but don’t expect an announcement in September. ”
“That leaves November and December as likely deadlines for announcing the cut,” analysts argued.
Indeed, a greater majority of the market now expects a relatively benign outcome from the event.
This would leave the status quo in play and should support gold as we rely on more US data ahead of the September Fed meeting.
On the other hand, a surprise hawkish result, or official tapering announcements could trigger a mini tantrum type in bonds.
This should translate into higher US yields, upward pressure on the greenback and weigh on precious metals.
That being said, a lot of the tapering expectations may have already been factored in. The moment of tapering is neither here nor there.
Markets seek clarity as investors try to guess the take-off in terms of rate hikes. Tapering has only just begun a long countdown to rate hikes.
The taper tantrum of 2013 did not actually translate into a significant or lasting supply on the US dollar.
On May 22, 2013, then Fed Chairman Ben Bernanke testified to Congress that the Fed may downsize its bond buying program.
This caused an initial but very short lived rally in DXY, ending the day up around 1% before finally starting to drop several days later, ending May at close to 5% of comment highs. post-Bernanke cone.
However, the S&P 500 fell 3% in just two sessions.
It wasn’t until December 18, 2013, that the Fed announced it would start cutting its aggressive bond buying program to $ 75 billion per month starting in January, propelling the market to a record close.
Meanwhile, the DXY didn’t start to take off until late summer 2014, when expectations of rate hikes finally began to feed into the market at a time when the rest of the world’s central banks. was deviating from the Fed’s tightening path.
All in all, this time around there is a long way to go and lots of speed bumps along the way.
However, as long as the US dollar smile theory continues to play, central bank divergence should maintain the underlying greenback, which is a potential headwind for gold prices.
US data will be crucial in the weeks to come before the September Fed meeting and will likely drive the last quarter of the year.
Technical analysis of gold and DXY
DXY technical analysis
According to the analysis, US dollar at start or stop point, countdown to decrease, bulls in the US dollar need the price to close above 93.50 from a longer term perspective.
In doing so, he will have cleared the long-term resistance structure including the weekly 200-SSMA, which marks the line between bullish and bearish territory.
From a daily standpoint, bears will be in play again on a breakout of trendline support and horizontal structure below 92.80:
For the bulls, at least in the near term, it will be imperative that US 10-year yields extend past the daily resistance of 1.3020% and break the ice above 1.3810% to confirm the bullish candle formations.
We have a bullish hammer printed on July 20, followed by a double dip on August 4, although this was followed by a failure of a remainder of the old resistance structure near 1.2950 / 1.3030 :
Meanwhile, on a daily basis, the price of gold will need to cross 1,810 before any belief can be given to the rally.
However, if 92.80 breaks the DXY, exposing 92.50 as the last defense, then gold may take off beyond 1,810, leaving the precious metal prominently for the foreseeable future:
This will see the price close above the daily dynamic trendline, horizontal weekly resistance and countertrend between 1,810/20.
Doing so would likely lay the foundation for a further rise to previous daily highs near 1,830 and then 1,900.
On the other hand, if the US dollar breaks a breakout higher then gold will most likely drop weekly resistance against the trendline and again expose 1,700 and then 1,677 August lows.