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Gold's Downtrend Continues - Fed Rate Hike Sentiment in Play

Gold’s Downtrend Continues – Fed Rate Hike Sentiment in Play

Posted Monday, September 19, 2022 by
Skerdian Meta • 2 min read

Early Monday morning in Europe, the gold price remained near the intraday low of $1,670. As a result, metal prices suffered the brunt of a stronger US dollar during a sluggish session due to vacations in Japan and the United Kingdom. The cause could be tied to the Fed’s hawkish views and reports about China.

The US Dollar Index (DXY) has broken a two-day decline and is currently trading at 109.85, up 0.18% on the day. The dollar index versus the six main currencies has recently risen in response to positive consumer confidence data from the University of Michigan for September and the market’s bullish predictions on the Fed’s next move. Nonetheless, the odds of the Fed raising interest rates by 75 basis points (bps) increased to 80%, while market expectations of a complete one-percentage point increase in the Fed rate rose to 20% at the latest.

XAU/USD

In other news, US Vice President Joe Biden stated, “I’m more positive than I’ve been in a long time.” The national leader also claimed that inflation would be brought under control. On the same note, China has unlocked Dalian and Chengdu cities while reporting zero coronavirus cases in Beijing and one, compared to zero the previous day, outside Shanghai’s quarantine zone. However, US President Biden’s willingness to support Taiwan if China assaults Taipei and the Fed’s hawkish expectations appear to be weighing on the metal price ahead of the crucial monetary policy pronouncements.

The People’s Bank of China (PBOC) also reduced the 14-day reverse repo rate by 10 basis points (bps) to 2.15%. “With no reverse repos maturing on Monday,” according to Reuters, “China’s central bank injects 12 billion yuan on the day.” The same may have indicated that the dragon nation isn’t in recovery mode and requires more rate cuts than rate hikes, which could have drowned the GOLD price. The reason for this is China’s standing as one of the world’s largest gold consumers.

In this context, the S&P 500 futures show minor losses while mirroring Wall Street’s Friday close. It should be noted that the Japanese holiday limits bond trades in Asia, but rates remain firm near multi-day highs amid recession fears and aggressive Fed expectations.

Gold Technical Outlook

Gold price provided positive trades in previous sessions to test the first key resistance at $1,680 and began to fall by today’s open to resumption of the primary bearish trend, structured within the bearish channel that shows up on the chart, backed by stochastic negativity, having to wait to head towards our extended targets that begin at $1,644, followed by $1,630.

As a result, the bearish trend scenario will dominate in future sessions, assuming price stability is below $1,690. Today’s trading range is likely to be between $1,645 support and $1,685 resistance.

Today’s projected trend: Bearish

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