Gold rebound ahead of FOMC? XAU/USD price setups

Gold, XAU/USD – Price Action and Outlook:

• XAU/USD)’s rally is losing steam as it runs into stiff resistance.
• Main focus now on US Fed, ECB and BOJ policy meetings/Rate decisions.
• What is the outlook and what are the key levels to watch in XAU/USD?

Gold’s rally appears to be losing steam ahead of policy meetings by the US Federal Reserve, the European Central Bank and the Bank of Japan, raising the risk that this month’s rebound could be in order.

The US Federal Reserve is widely expected to raise interest rates by a final 25 basis points on Wednesday, but the accompanying statement will be closely watched. A hawkish hike could support the US dollar globally and weigh on gold. More data-dependent / ‘wait-and-see’ could bring the USD and gold back within their recent ranges, while a dovish increase could put downward pressure on the USD, which would be helpful to XAU/USD.

In terms of the sensitivity of the potential move, if recent USD performance is anything to go by, a dovish hike by the Fed would weigh more heavily on the USD than the other two scenarios. For more on sensitivity, see “Gold Jumps After U.S. Retail Sales; What’s Next for XAU/USD After Reverse H&S Target Met?”, published on July 19.

XAU/USD 240 minute chart

Chart created by Manish Jaradi using TradingView

The European Central Bank is also expected to raise its benchmark rate by 25 basis points on Thursday, which is likely to continue. However, recent comments from ECB officials that the September rate hike is not a done deal raise the risk of a tough hike. Meanwhile, the Bank of Japan is expected to maintain its ultra-easy monetary policy at its meeting on Friday.

XAU/USD Daily Chart

Chart created by Manish Jaradi using TradingView

On the technical charts, as highlighted in the previous update, XAU/USD met the price target of the 1980 minor reversal head & shoulder pattern activated earlier this month. However, the yellow metal appears to have succumbed to a tough resistance in early June 1983, just below the upper edge of the Ichimoku cloud on the daily charts.

XAU/USD needs to continue above converged support, including the mid-July 1945 low and the 200-period moving average on the 240-minute charts, if it is to continue its recent rally from late June.

Source: IG Client Sentiment

Failure to do so would confirm a one-month rebound, exposing risks to the June 1893 lows, possibly lower. Retail trader data shows that about 69% of traders are net long gold. IG client sentiment data is used as a counter indicator to general crowd sentiment, suggesting further weakness in XAU/USD.

— Written by Manish Jaradi, Strategist of DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish