- Gold bulls seeking a deeper correction of the bearish daily impulse.
- US dollar is on the backfoot as Fed’s Powell fails to spur up further demand.
Gold prices were lower into the closing bell on Tuesday but off their lows as the greenback lost ground in the latter part of New York day.
At the time of writing, XAU/USD is down 0.37% and had travelled between a low of $1,772.39 and $1,790.20.
Gold prices are consolidating at the bottom of the recent drop from above $1,900 as the US dollar slides in on an area of a support structure identified in the DXY on 15th April in the 91.60s.
DXY has dropped from a high 92.1380 to a low of 91.6450 and failed to find support on comments from the Federal Reserve’s chair, Jerome Powell.
Powell said it is difficult to know how long some of the transitory impacts on inflation will last but thinks we should be through it in a year’s time.
The US 10-year yield eased over 2bps to 1.4630%.
Fed’s Powell speech: Labor demand is remarkably strong
Powell speech: We’re prepared to use tools as appropriate
Powell speech: We will respond to shortfalls in unemployment
Numerous Fed speakers dialled back the hawkish theme in comments on Wednesday,
Cleveland Fed President Loretta Mester said that now is not the time to end accommodative policies while New York Fed President John Williams argued that there is still plenty to go until full employment.
Williams said a rate rise is a “way off” and he expects inflation will fall back to 2.0% next year.
Meanwhile, San Francisco Fed President Mary Daly argued that the conditions for tapering may be met later this year or early next year.
The Fed had surprised the market last week with a hawkish hold which set off forex volatility as traders managed to flows and repositioning as the markets adjusted for a rise in interest rates and end emergency bond-buying sooner than expected.
Analysts at TD Securities explained, ”the Fed’s decisively hawkish tone has killed inflation risk premium as it pencilled in two hikes for 2023 — signalling a change in reaction function, which challenges their credibility for average inflation targeting. In any case, the Fed isn’t behind the curve by any means, which removes the immediate impetus to buy gold.”
The bulls are set on a 38.2% Fibonacci retracement of the daily bearish impulse that comes in at $1,814 meeting the 13th May support area and the 10-day EMA.
However, the price is back in bearish territory considering it has failed to hold above the prior daily bullish close.
Nevertheless, a surge to the upside resistance would leave a W-formation on the charts that could result in a restest of the current highs while markets await the next catalyst in US jobs data in particular.
