The precious metal is soft as it heads towards the conclusion of a volatile week, during which it exhibited two-way action, setting both new highs and fresh lows for the month. It started off pretty badly, with one of its worst days of the year on Monday, as markets reacted to the recent US CPI Inflation surge to the highest level in four decades.
This led to an aggressive repricing for a more hawkish outcome from the Fed's meeting and expectations for a larger 75 basis point rate hike, which boosted the USDOLLAR. The Fed catered to those expectations on Wednesday, delivering its largest rate increase since 1994, but since this outcome was priced-in, XAU/USD rebounded in the aftermath.
Furthermore, the Fed's action was followed on Thursday by the fifth straight rate increase by the Bank of England (BoE) and lift-off by the Swiss National Bank (SNB) - factors that heightened fears of stagflation and led to risk-aversion.
Despite this high volatility and the new high/lows, firm direction remains elusive for XAU/USD, which is still trapped in older key technical levels, with the outlook little changed.
Another visit above the 38.2% Fibonacci of the April High/May Low drop proved short-lived, but remains close to it and has the ability to push for new month highs. However, a strong catalyst will be required for a move beyond the descending trendline from the year's highs and the lower border of the daily Ichimouku Cloud (at around 1,885). Successful effort will but bulls in the rivers seat.
However, XAU/USD will probably have a hard time avoiding a losing week and this lack of progress along with the supportive for the greenback policy from the Fed, put Gold in a tough spot. It is vulnerable to renewed pressure towards 1,804, although sustained weakness below 1,780 may not be that easy for now.
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.