Gold Bulls Face a Challenge as the Dollar Index (DXY) Holds High Ground


GOLD PRICE FORECAST:

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Gold prices remain under pressure on the back of a resilient Dollar Index (DXY). The strength of the Dollar could be down to a host of factors as the FOMC meeting approaches. Gold prices look to be in need of a catalyst at this stage with a new range seemingly established between the $1950 and $1980 handles respectively.

Refinitiv Poll on the FOMC July Meeting

*106 economists polled; all see a 25bps hike at tomorrow’s meeting

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Source: Refinitiv

FOMC MEETING, DXY AND US PCE DATA

The Dollar Index (DXY) came under mild selling pressure in the Asian session as hopes of a stimulus package in China helped sentiment, weighing on the safe haven US Dollar. However, the European open has seen those losses erased as the DXY marches higher ahead of the highly anticipated FOMC meeting. The strength of the DXY could in part be attributed to repositioning and potential profit taking following last week’s selloff.

The FOMC meeting tomorrow could be the catalyst gold prices need to forge ahead. Market participants are largely resigned to a 25bps hike from the Fed which should not move markets all that much as it appears to be priced in already. As has been the case of late the press conference by Fed Chair Powell is likely to hold the key to market sentiment moving forward as well as any adjustments to the Fed outlook for the rest of 2023. The positive signs on the inflation front do bode well for another Fed pause which could see the DXY retreat and help push gold prices higher. In my humble opinion, it would take extremely hawkish comments from the Fed Chair for the DXY to sustain its current upward momentum with my gut leaning on the side of Dollar weakness post FOMC.

To wrap up the week the Fed will get another glimpse at their favorite inflation gauge with Core PCE data scheduled for release. It has been an interesting ride for PCE data in 2023 with 3 consecutive months of decline followed by an uptick in April. A drop again this month will follow on from a decline in May with a print below estimates adding further selling pressure on the DXY.

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TECHNICAL OUTLOOK AND FINAL THOUGHTS

Form a technical perspective, Gold prices do appear poised for further upside despite the recent pullback from the high at around $1987/0z. On the daily timeframe a candle close below the $1952 mark would see a change in structure and an increase in bearish pressure on gold prices.

Heading into the US session yesterday and Gold appeared ready for a renewed push to the upside as it found support around the 100-day MA. However, the continued strength of the DXY dragged Gold prices lower, hovering between the 50 and 100-day MAs. There is a strong likelihood that Gold remains trapped between these two MAs resting around the $1963 and the $1947 handles respectively, ahead of tomorrow’s FOMC meeting.

Gold (XAU/USD) Daily Chart – July 25, 2023

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Source: TradingView, Chart Prepared by Zain Vawda

The Dollar Index (DXY) is going to be key for the direction of gold over the coming days and weeks. The recent rally following a drop below the psychological 100.00 mark appears to be running out of steam.

With that in mind and the FOMC meeting tomorrow Dollar bulls will be hoping for some form of hawkish comments from Fed Chair Powell to keep the rally moving toward resistance at the 102.00 handle. A break of this level should the DXY continue to advance would bring the 50 and 100-day MA into focus resting around the 102.50 handle which rests in the gap between the 61.8-78.6 fib retracement levels. This confluence area if reached could serve as a strong area of resistance facilitating a broader move to the downside for the Dollar Index.

Dollar Index (DXY) Daily Chart – July 25, 2023

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Source: TradingView, Chart Prepared by Zain Vawda

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Written by: Zain Vawda, Markets Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda




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