Oct 17, 2022
VOT Research Desk
Market Analytics and Considerations
The Dollar Index has a rough start to the week.
The XAU/USD $1670 Trend Remains Vital.
Rate Increase Predictions and the Dollar Index Will Continue to Determine the Next Step for Precious Metals.
Fundamental Background for XAU/USD
A weaker dollar index helped gold bounce back in the Asian session to trade back over the $1650 mark. The action follows a print to close last week that was three weeks below average as fundamentals and persistently hostile central bank language threaten to drive the precious metal into its YTD low. The precious metal doesn’t seem to be affected by the weekend remarks made by US Federal Reserve policymakers. Esther George and Mary Daly, two policymakers, hinted that the Fed would need to raise rates further than anticipated in response to last week’s US CPI reading.
This week’s movements in the price of the precious metal are anticipated to depend on a variety of outside variables, along with the dollar index. After last week’s hotter-than-expected US CPI reading, there is a 96% chance that the US Federal Reserve will raise interest rates by 75 basis points at its forthcoming November meeting. As we start a new week, initial speculation about a 100bp Fed rate hike in November appears to have died down, which may aid the precious metal in regaining its footing and moving higher early in the week.
Source: CME Fed Watch
Now the attention is on US housing data which is coming this week. In July, prices on the US home market declined for the first time in ten years as a result of declining demand and rising interest rates. A decrease in retail sales in some industries is anticipated to follow the domino effect of decreased housing demand, which will also have an impact on building and job development.
This might thus serve to reduce inflation going forward, result in a reduction in the Fed’s expected rate hikes in 2023, and possibly help the precious metal recoup some of the losses it suffered last week. The precious metal may falter this week as positive housing data support the notion that the Fed will continue raising interest rates into the 2023.
We had a bearish daily candle close on Friday from a technical point of view, and we have since bounced off the 76.8% fib level. Price is still below the 20, 50, and 100-SMAs, and the gradient’s slope suggests further downside. As long as the price remains below the double-top pattern around $1730, the overall bias remains bearish.
On the other hand, the intraday outlook suggests a possible rise, with $1660 and $1670 as potential resistance levels. A weaker dollar index is helping to propel the precious metal higher, as Price Action is printing higher highs and higher lows on the shorter timeframes .As we approach the $1670 resistance area, caution is advised because a number of confluences may still play a role and cause the price to fall. A retest of the year-to-date lows and possibly the psychological $1600 level is possible if the daily candle closes below the $1640 support area
