Bulls looking for an upward correction ahead of the Fed
The precious metals sector struggled overnight as investors position themselves in favor of a possible change in monetary policy from the Fed.
Gold prices fell about 0.4% in the latter part of the North American day as the US dollar strengthened ahead of the outcome of the two-day Fed meeting on Wednesday.
XAU / USD was trading between $ 1,851.66 and $ 1,869.20. At the time of writing, the price is flat and settles with an upward technical bias.
The price was also penalized by a stronger US dollar and higher yields on US Treasuries.
The US 10-year yield was up 0.5bp to 1.49% while the DXY was between 90.3 / 67, ready for a downward correction according to the W formation on the daily chart:
Meanwhile, Tuesday’s data fueled supply for the greenback as otherwise markets had valued an accommodative Fed longer given the communication so far from Fed officials.
“While the market won’t expect the Fed to start cutting its bond purchases at this meeting, it will look at the dot chart for any signals it might consider raising rates. interest in 2023 amid higher inflation and stronger economic growth, ” ANZ Bank analysts said.
Members insisted that mounting inflationary pressures are transient and the super-easy monetary parameters will remain in place for some time. Fed Chairman Powell is expected to say the most likely course is for inflation to decelerate over the next few months, returning to more normal levels later this year.
On the other hand, if there are upward revisions to PCE inflation in 2021, this could translate into a more sustained rise in inflation over the medium term.
This would be more hawkish than market prices and would most likely weigh on precious metals.
Gold Price Analysis
Technically, the M formation on the daily chart is compelling.
Bulls can aim for a retracement of at least to the 38.2% Fibo at 1,867, although the pattern aligns better with the 61.8% Fibo at 1,880, per the 10-day EMA.
The lower lower on the 4-hour chart should also be encouraging for the bulls.