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Gold Resumes Downtrend After Rejection at MAs

The risk sentiment turned negative for most of February, as the data pointed to a recovery in the US economy, while FED members started making more hawkish comments. In the last couple of weeks, we have seen some uncertainty though, as markets awaited stronger signals from Powell, who gave such signals today during his testimony at the US Congress.

Risk sentiment turned negative and the USD started resuming the uptrend. The losses in risk assets such as in European markets are approximately half of those seen in the US. Throughout most of the day, the primary indexes in Europe were performing well but stumbled just prior to Powell’s speech and then further following his hawkish comments.

Gold is performing as a risk asset now, and since October it had been bullish, while the USD retreated lower, with the 20 SMA (gray) acting as support on the daily chart, which showed that the buying pressure has been quite strong. Although, the price reversed early in February and Gold broke below this moving average, as well as below the 50 SMA (yellow).

The 50 SMA turned into resistance immediately after that, which was the first sign of a trend reversal, while now the 20 SMA has turned into resistance, which confirms the trend reversal. Powell continues with the Q&A, which is also sounding hawkish. Highlights of prepared testimony from Federal Reserve chairman Jerome Powell for the Senate finance committee. He will answer questions afterward.

  • If totality of incoming data indicates faster tightening is warranted, we are prepared to increase pace of hikes
  • We will continue to make our decisions meeting by meeting
  • Latest economic data stronger than expected, particularly inflationary pressures
  • Some strength in overall January data reflects better weather
  • Little sign of disinflation so far in core services excluding housing
  • To get inflation back to 2% we need to lower core services inflation ex housing and very likely will get some softening in labor market
  • History cautions against loosening policy prematurely
  • Ongoing increases in policy rate likely appropriate

The odds of 50 bps in March are now up to 42% from about 26% before Powell spoke. The peak rate is now up to 5.59% from 5.45% beforehand.

Gold XAU Live Chart

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Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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