The Fed last week paused its tightening cycle, maintaining interest rates at 5.00-5.25%. This decision was motivated by their intention to gather additional economic data before deciding on further rate hikes. Their objective is to find the optimal level of policy restraint that can bring inflation down to their target without risking a severe recession.
So far, the economic data in the United States has been positive, particularly in the housing sector, which has demonstrated significant resilience since the Federal Reserve began reducing its rate hikes in December 2022. This positive performance in the housing market may have contributed to the recent strength in the USD. Moreover, Fed Chair Powell kept saying that he expects two more rate hikes this year if the economy performs as expected.
Gold Technical Analysis – Daily Timeframe
On the daily chart, we can see that Gold has eventually broken below a key support level at 1934 where we also had the 50% Fibonacci retracement level for confluence. The break below the major upward trendline was already a signal of bearish sentiment but the consolidation afterwards seemed to suggest that the price could bounce back above the trendline and result in a fakeout. Now the price sits at the 61.8% Fibonacci retracement level, will it bounce back above the 1934 resistance, or we will see a big selloff into the 1800 level?
Gold Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that with this latest leg lower we have a divergence with the MACD. This is generally a signal of weakening momentum often followed by pullbacks or reversals. We may see a classic “break and retest” move where the price pulls back into the 1934 resistance, where we also have a trendline now, and then starts to fall again. The sellers should lean on that 1934 resistance with a defined risk above the trendline.
Gold Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor downward trendline that can be used by the aggressive buyers to pile in once the price breaks above it in expectation of the price continuing to rally past the 1934 resistance. The sellers have also the 61.8% Fibonacci retracement level near the downward trendline where they can lean on to for an even better risk to reward setup.
Today we will see the latest US PMIs where gold may react positively if the data misses expectations as the market would price out the July hike, and negatively in case the data beats forecasts due to more hawkish expectations.
