XAU/USD Retracement to 1880 Pre-FED?

13 Okt 2023

Gold continued its upward movement, surpassing $1,910 on Friday after two weeks. The 10-year US Treasury bond yield dropped almost 2%, prompting an upward push for XAU/USD as investors sought safety ahead of the weekend. The Gold price briefly reclaimed the crucial 21-Day Moving Average (DMA) at $1,878 but didn't close above it. The 14-day Relative Strength Index (RSI) suggests the upward movement in Gold price may be temporary.
Failure to close above the 21 DMA at $1,878 for the week could reinforce bearish sentiment, potentially causing a downward trend towards $1,859 seen on Wednesday.
The next major support level is at $1,850. On a positive note, consistently holding above the 21 DMA confirms a bullish reversal from multi-month lows. Gold buyers will target $1,900 and face resistance around $1,925. Investors are reevaluating expectations of the US Federal Reserve's hawkish stance due to unexpectedly high Consumer Price Index (CPI) data. The US CPI increased by 0.4% last month, matching the 3.7% annual inflation in September, reinforcing the Fed's narrative of "higher rates for a longer period." This led to a rise in the US Dollar and Treasury bond yields, causing Gold price to reverse from a two-week high above $1,880. The hawkish Fed outlook diminished risk sentiment, aiding the US Dollar's rebound. Boston Fed President Susan Collins noted the latest inflation report highlights uneven progress in restoring price stability, suggesting the central bank might need to raise rates again to combat inflation.
According to the CME Fedwatch tool, the probability of a December rate hike by the Fed spiked to 38% compared to 28% before the report. Markets now price a 30% chance of a final Fed rate hike in December.
The reaction to the US CPI report was short-lived, as selling pressure on the US Dollar resumed on Friday despite negative risk sentiment due to softer-than-expected Chinese CPI and Producer Price Index (PPI) data. China's CPI remained unchanged in September at 0% YoY, contrary to expectations of a 0.2% rise. China's PPI declined by 2.5% YoY in September, compared to a 3.0% decline in the previous reading, slightly below the market's forecast of a 2.4% decline. Now, focus shifts to the US Preliminary UoM Consumer Sentiment and Inflation Expectations data for insights into the Fed's interest rate outlook. Speeches from Fed policymakers will also influence the US Dollar's valuation, along with end-of-the-week market flows.