Oct 27, 2022
VOT Research Desk

Market Insights, Considerations & Analytics

As the US dollar strengthens, gold’s battle with the 21DMA continues.

US forward Q3 GDP may provide new cues on discussions of a potential Fed turnabout.

Technically, the XAU/USD pair is trending downward; an aggressive ECB rate increase could be the trigger.

As investors prepare for important events on Thursday, the gold price is looking for a clear directional bias, stalling a two-day upswing towards $1,700.After the unrelenting sell-off that has occurred throughout this week, the US dollar is making up some ground across the board. The pain in US Treasury yields across the curve was exacerbated by rising expectations that the Fed will reduce its rate hikes, resulting in an extended dollar sell-off.

Over the course of two days, the benchmark 10-year US rates shattered the crucial 4% level by nearly 25 basis points.

The American dollar also suffered as a result of the Bank of Canada’s (BOC) dovish rate hike decision, which pointed to the beginning of a slowdown in the global tightening race and suggested that the Fed might soon follow suit.

Markets were taken aback by the Bank of China’s surprise rate hike of 50 basis points, as opposed to the 75 basis points that were anticipated. This move brought the policy rate to 3.75 percent in October while acknowledging a slowdown in the economy. Even though a November 75 bps rate hike is already in place, concerns about the health of the world’s largest economy are being fueled by a recent series of negative US manufacturing and services surveys and weak housing data.

Having said that, all eyes are now on the US advance Q3 GDP print, which is expected to rise by 2.4% on a quarterly basis, up from the -0.6% that was previously reported. Dollar bulls could be saved from their recent downfall by a reading that was stronger than anticipated, which would quell dovish Fed expectations. As a result, the price of gold could slow down its recovery and head toward the monthly lows.

However, the decision regarding the ECB’s rate hike will also have a significant impact on the subsequent price direction of the yellow metal and the dollar. Fears of a recession could be stoked by an ECB rate hike of 75 basis points, which could be good news for the safe-haven dollar. Before the big day, the gold price appears to be in a lose-lose situation.

At the 21-Daily Moving Average (DMA), which is currently at $1,669, the price of gold has encountered strong resistance.

The downside continues to be favored because the 14-day Relative Strength Index (RSI) remains below the midline.

A test of the $1,650 low from the previous day will be necessary if acceptance does not rise above the 21DMA.The low of $1,638 on Tuesday appears to be the next cushion/support.

Below the latter, selling pressure will likely increase, allowing for a fresh drop toward the $1,617 monthly low.

To extend the renewed uptrend, bulls must instead establish a firm foothold above the 21DMA.

The Monday high of $1,671 will play a role further up.

The $1,683 high on October 13 is the next upside target, just below the $1,700 threshold.

Technical Indicators

Moving Averages – Daily

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