Market Analytics and Technical Considerations

Key Points

• Around China’s Covid Approach, confidence is growing.
• A Further Leg to the Upside Is Indicated by the 4H Chart’s Ascending Channel and Bullish Price Action.

Fundamental Background for Gold (XAU/USD)

This morning, gold staged a return, erasing out Monday’s deficits. As the dollar started to weaken again, the precious metal recovered from low points near $1740 to trade over the psychological mark of $1750. The haven seeking that lifted the value of the dollar has diminished today morning as

Mood improved up overnight in China as the number of Covid cases decreased from 40,400 to 38,600 from the previous day. The Chinese Securities Regulatory Commission (CSRC) announced it would expand equity financing channels, including private share postings for China and Hong Kong-listed Chinese devs, going to lift a ban that had been in for years. Chinese officials also wandered back a ban on equity refinancing for listed real estate firms. Overnight, there were rumors circulating that the Covid regulations would be relaxed sooner rather than later, but this has not yet been confirmed. Gold would undoubtedly benefit from such a rise, and it may even break high if mood turn positive and dollar weakness worsen.

Bullard, Williams, and Brainard’s remarks monday had investors on edge as Federal Reserve policymakers continued to use hawkish language. Bullard claimed that despite the three parties’ agreement that there are still upside risks to inflation, markets may be misreading the chance of higher rates. In his speech Wednesday, Fed Chair Powell is expected to hint to a slightly slower pace of rate increases, but his remarks from yesterday might cause market players to pause. Given the aggressive remarks made by Fed members, the likelihood of a 50 bps increase in December dropped from 75% to 66% (from 72% now).

Source: CME FedWatch Tool

On the daily timescale, Gold produced a big bearish enveloping candle closure, but there has been no subsequent movement. The 100-day MA provided important support when the price declined Monday, and XAU/USD is still above the critical region of support (the highs from September and October) around $1730. On the 4H period, gold is trading within an ascending channel that may see a push higher toward the $1767 level eventually aiming for recent peak at the $1786 level.

Source: TradingView

In contrast, a break below the ascending channel and the 100-day moving average would allow for a retest of previous resistance that later turned into support at $1730. Considering yesterday’s reversal just as the US session got underway, caution is advised given how the dollar index continues to dominate gold’s movements.

Exponential Moving Averages – Daily