Gold Price Rallies as Federal Reserve Looms: Will the Uptrend Continue or Will a Correction Take Place?

  • The US Dollar Index (DXY) is experiencing a four-day downtrend, with intraday lows being renewed.

  • Talks of a 0.25% rate hike in February by Fed hawks have failed to impress buyers of the DXY.

  • Factors such as mixed sentiment in the market and China’s Lunar New Year holidays are contributing to the current movements in the DXY, and preliminary readings of January PMIs and US Q4 GDP will be crucial in determining the next impulse for the index.

  • Gold price has risen at the start of the week, as investors shift from short positions to long positions, driven by the expectation that the Federal Reserve will slow the pace of rate hikes.

  • The US Dollar index (DXY) has dipped in recent trade, making gold cheaper for holders of other currencies and lower US Treasury yields tend to steer investors towards the zero-yield yellow metal.

  • There are mixed feelings surrounding the Federal Reserve, with some analysts expecting further tightening while others believe the market is underestimating the potential for a higher for longer Federal Reserve.
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EURUSD:  EUR/USD heads for biggest weekly gain since November despite Friday’s slide

  • EUR/USD has been in an uptrend for the past three days, approaching a nine-month high of 1.0900
  • Bullish MACD signals and a sustained trading beyond a previous resistance line favor bullish sentiment, however, the RSI is approaching overbought territory
  • Further upside for EUR/USD may be limited and needs validation from the 61.8% Fibonacci Expansion (FE) of the pair’s January 8-18 moves, near 1.0920.

USDJPY: Sellers continue to lurk at 21DMA

  • USD/JPY is attempting a minor rebound after testing the 129.00 support level earlier in Asian trading
  • The sentiment around the currency pair remains undermined by sluggish US Treasury bond yields and a broadly weaker US Dollar due to dovish Fed expectations.
  • Investors are assessing the Minutes of the Bank of Japan’s (BoJ) latest policy meeting, which showed that “several members said effects of powerful monetary easing will continue even if BoJ widens band around its yield target.”
  • USD/JPY is trading on the back, having faced rejection at the bearish 21-Daily Moving Average (DMA) a couple of times last week.
  • The 21DMA is now aligned at 131.03, above which the next powerful resistance is seen at the upper boundary of a falling wedge formation at 132.34.

GBP/USD: GBP/USD bulls dominate above 1.2400 as UK stimulus loom

  • GBP/USD takes the bids to refresh intraday high, up for the fifth consecutive day.
  • Expectations of UK stimulus bolster as British business push PM Sunak to act on growth reforms.
  • Hawkish Fed talks fail to underpin US Dollar rebound amid downbeat US data, expectations of soft landing.
  • First readings of January’s PMI, US Q4 GDP will be crucial for clear directions.

AUD/USD: AUD/USD bulls reclaimed 0.6900 as the USD wobbles

  • A risk-on impulse favored risk-perceived currencies like the Australian Dollar.
  • The US housing market continues to deteriorate, as shown by Existing Home Sales plunging.
  • Fed officials favor a deceleration of rate hikes, though the higher-for-longer stance remains unchanged.

USD/CHF: Slides towards 0.9160 support

  • USD/CHF is extending the previous day’s pullback, consolidating the biggest daily gains in over a week.
  • Bearish MACD signals back the failure to cross key hurdles and direct sellers towards immediate support line, an ascending support line from last Wednesday, close to 0.9160.
  • A convergence of the downward-sloping resistance line from January 06 and the 200-Hour Moving Average (HMA), close to 0.9230-35, could challenge short-term USD/CHF recovery.

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GOLD: XAU/USD struggles around $1930s, drops on buoyant US Dollar

  • Gold price is retracing from multi-month highs due to the US Dollar recovering and elevated US Treasury bond yields.
  • US economic data was mixed, showing that the labor market is far from portraying an upcoming recession.
  • The XAU/USD uptrend is intact, further cemented by the cross of the 100-day Exponential Moving Average above the 200-day EMA.

SILVER: XAG/USD reached a new two-day high but fell short of $24.00

  • Silver price extended gains for the second consecutive day, reaching a new two-day high at $24.07.
  • XAG/USD is range-bound but could turn bullish above $24.50.
  • If XAG/USD clears $24.50, it would keep buyers in charge and open the door to test the $25.00 psychological level.
  • Alternate scenario: if XAG/USD breaches the 20-day Exponential Moving Average (EMA) at $23.69, it could send Silver sliding towards the January 19 pivot low of $23.17.

OIL: WTI snaps two-day winning streak above $81.00 despite softer US Dollar

  • WTI crude oil remains pressured around intraday low as it snap two-day uptrend.
  • Oil markets consolidate recent gains amid China holidays, pre-Fed blackout.
  • G7 pushes back review of the Oil price cap on Russian exports.
  • Preliminary PMIs for January, US Advances GDP for Q4 will be crucial for fresh impulse.
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Watch Out This Week

  • On Jan 24th, the USD PMI report will come out. A figure that is higher than anticipated should be viewed as positive (bullish) for the USD, while a figure that is lower than anticipated should be viewed as unfavorable (bearish).

  • The release of the Trade Balance report on January 26th will be closely monitored by market participants. A higher-than-anticipated figure may be interpreted as supportive of the USD, while a lower-than-expected result may be seen as detrimental to the currency.

  • It is important to pay attention to the report on Initial Jobeless Claims on 26th January, as it may have significant impacts on major currencies. The financial markets are greatly impacted by first-time jobless claims, as they indicate new and emerging unemployment, unlike continuous claims data which tracks the number of individuals receiving unemployment benefits. An above average figure is considered negative for the USD, while a below average figure is considered positive for the USD.
Michael Scott
Michael Scott

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