The current price of XAU/USD is 2,029.70, and the market mood has had an impact on the demand for the US Dollar in the American session. Investors are eagerly awaiting a United States inflation update and are increasingly betting on a March rate cut. However, XAU/USD is showing limited bullish potential and may break the $2,000 mark.
The US Dollar experienced selling pressure during American trading hours, causing XAU/USD to recover from its early losses. The metal is currently trading around $2,030 per troy ounce after reaching its lowest point since mid-December at $2,016.61. The optimism in the financial markets has returned with the opening of Wall Street, as investors are once again predicting a rate cut by the Federal Reserve in March. Additionally, a report from Bank of America suggests that the central bank may begin tapering its massive Treasury holdings around the same time.
Government bond yields have decreased, with the 10-year Treasury note yielding 3.97%, down 6 basis points, and the 2-year note offering 4.31%, down 7 basis points. Although most US stock indexes are in the green, the Dow Jones Industrial Average is down by 0.09%.
Market participants are eagerly awaiting the US inflation update, with the December Consumer Price Index (CPI) expected to be released next Thursday. The core annual reading is anticipated to ease to 3.8% from 4% in November.
In terms of technical outlook, the daily chart for XAU/USD shows a downside risk, as the metal trades below a flat 20 Simple Moving Average (SMA) and the 100 and 200 SMAs converge around $1,962 with modest upward strength. The Momentum indicator has turned flat and consolidates around its 100 level, while the Relative Strength Index (RSI) indicator offers a bearish slope at 49, indicating a potential for another leg lower. On the 4-hour chart, technical indicators have bounced from recent lows but remain within negative levels, limiting the odds for a stronger recovery. XAU/USD is also contending with a directionless 200 SMA while the 20 SMA heads south, providing dynamic resistance around the $2,040 level.
Support levels for XAU/USD are at 2,016.60, 1,998.65 and 1,987.20, while resistance levels are at 2,040.20, 2,052.30 and 2,065.45.
Insight: With the ongoing uncertainty in the market, particularly surrounding US inflation and interest rate cuts, XAU/USD may continue to see fluctuations. Investors should closely monitor the release of the US inflation update next week, as this could have a significant impact on the direction of XAU/USD. Additionally, the technical outlook suggests a potential for further downside, but a firmer recovery is not entirely ruled out.
