Gold Drops Back Into the Cloud as Debt Ceiling Talks & Fed Repricing Weigh

  • XAUUSD
    (${instrument.percentChange}%)

XAU/USD Analysis

Optimism around a successful resolution of the US debt ceiling saga persisted after Monday's in-person talks between US President Biden and House Speaker McCarthy. The two sides were unable to reach an agreement, but spoke of a "productive" meeting. [1], [2]

Hopes for a deal that would allow the US government to continue paying its bills with not disruption, have been supportive of the USDOLLAR, since they lower chances of a hard landing. At the same time, markets have moderated their dovish expectations around the Fed, following a series of mostly hawkish comments by policymakers.

Most of them have dismissed anticipation of rate cuts within the year, while some don't see the case for a pause, as it had been hinted earlier in the month. Ms Logan (voter) for example, said last week that the data don't support a skip of rate hikes [3]. On CNBC yesterday, Mr Kashkari (voter) spoke of a "close call" between the a pause and a hike at the upcoming discussion, but stressed the importance of not taking further tightening off the table, while noting that rates may need to go above 6% (form 5.25% currently). [4]

XAU/USD had risen to new record highs at the beginning of the month, after the Fed opened the door to a pause, but the greenback's advance has forced it into a correction. Today it drops back into the daily Ichimokou Cloud, which creates scope for further losses towards the lower border (at around 1,925), although it may be early to talk about a steeper decline that would challenge the 200Days EMA (1,880).

On the other hand, as we move closer to the early-June estimated deadline without an agreement on the budget, sentiment could sour again and potentially support gold. Furthermore the Relative Strength Index moves to oversold levels again. As such, a bounce to the 200EMA (1,990) would not be surprising, but daily closes above it that could pause the downside momentum would need strong catalyst and the 2023 highs appear distant (2,080).

Nikos Tzabouras

Senior Financial Editorial Writer

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 23 May 2023 https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/22/statement-from-president-joe-biden-on-budget-negotiations/

2

Retrieved 23 May 2023 https://twitter.com/SpeakerMcCarthy/status/1660791412781367298

3

Retrieved 23 May 2023 https://www.dallasfed.org/news/speeches/logan/2023/lkl230518

4

Retrieved 17 Jun 2024 https://www.cnbc.com/2023/05/22/feds-kashkari-says-june-rate-pause-wouldnt-show-end-to-hiking-cycle.html

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