Gold Treads Water Close to Monday’s 8-Month Highs

  • XAUUSD
    (${instrument.percentChange}%)

XAU/USD Analysis

After two very bad quarters, Gold posted a strong recovery in November and December, ending 2022 pretty much at the same level it begun. The new year has started on the offensive, which led to Monday's eight month highs.

This is largely driven by renewed market hopes for a Fed pivot, which works against the USDollar, following Friday's economic releases from the US. Jobs creation growth decelerated again in December and wages eased to +4.6% y/y and the smallest rise of 2022, while the services sector contracted for the first time since 2020.

CME's FedWatch Tool prices-in a miniscule 0.25% rate hike in the next meeting, assigns the highest probability to rates peaking at 5% and points to cuts towards the end of the year [1]. Fed officials are far more hawkish though, since they recently upgraded their views on the appropriate policy path.

They expect a higher median terminal rate of 5.1% [2] and last week's minutes highlighted that "no participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023". [3]

As such, market participants will be eagerly looking for more hints around the Fed's intentions, with Chair Powell expected to speak later today, although we don't know if he will touch on the subject. Furthermore, US CPI inflation update is due on Thursday, which can determine the trajectory of the precious metal.

On the technical front, XAU/USD recently formed a Golden Cross on the daily chart (EMA50>EMA200) and Monday's eight-month highs have brought 1,909 in its crosshair. Bulls will likely need fresh impetus for taking out, whereas 1,959-62 may prove elusive in the near-term.

On the other hand, XAU/USD loses steam today as the greenback reacts and this could lead to a breach of the 50% Fibonacci of the 2022 high/low drop (1,842). However, daily closes below the critical 1,800-1,788 region are required to negate the bullish bias, which looks like a toll order at this stage.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 10 Jan 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

2

Retrieved 10 Jan 2023 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20211215.htm

3

Retrieved 30 Jan 2023 https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20221214.pdf

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