XAU/USD, which currently sits at 2,023.15, is facing continued selling pressure due to the strength of the US Dollar. The recent rally in the Greenback was triggered by the US Federal Reserve’s monetary policy decision and positive employment figures. Fed Chair Jerome Powell’s dismissal of the odds for a March rate cut has led to risk aversion, and the Nonfarm Payrolls report was much stronger than expected, further reducing the chance of a rate cut in the near future.
Additionally, government bond yields have resumed their upward trajectory, supporting the US Dollar in a relatively quiet week for macroeconomic releases. The USD also received a boost from upbeat local data, with the ISM Services Producer Manager Index jumping to 53.4 in January.
As for the technical outlook, the daily chart for XAU/USD suggests a neutral stance as the pair returned to the $2,020 price zone. The pair is currently developing below a flat 20 Simple Moving Average (SMA), with the 100 SMA limiting longer-term bearish potential. However, the Relative Strength Index (RSI) indicator is heading south, indicating the possibility of another leg lower.
In the near term, the risk appears to skew to the downside based on the 4-hour chart. Gold is developing below all its moving averages, with technical indicators bouncing from near oversold readings, aiming north within negative levels, but not enough to confirm an upcoming recovery.
Support levels for XAU/USD are at 2,022.75, 2,009.10, and 1,988.90, while resistance levels are at 2,029.90, 2,039.60, and 2,053.10.
Additional insight: While the recent strength of the US Dollar is putting downward pressure on XAU/USD, it’s important to note that gold historically serves as a hedge against inflation and currency devaluation. Therefore, the recent hints of inflation in the US economy, as indicated by the increase in the Prices Index, may eventually support the demand for gold, potentially leading to a recovery in XAU/USD in the longer term. This dynamic should be closely monitored by traders and investors.
