Megaphone Calls for XAU/USD Volatility Above $1,690, US Data, Fed Brief

  • The price of gold remains on the sidelines after falling the most in two months.
  • The mixed sentiment allows the XAU/USD bears to take a breather after the drop in the US CPI.
  • The bullhorn formation signals a further widening of the downtrend amid hawkish Fed bets and recessionary woes.

The price of gold (XAU/USD) is hovering around $1,700 as the bears take a breather after a volatile day, helped by US inflation data. Mixed concerns about inflation and China join a light calendar to portray the metal’s inaction early Wednesday morning in Europe.

After witnessing the biggest daily fall in gold, as well as the biggest rout in stocks in two years, driven mainly by US consumer price index (CPI) data, the US president Joe Biden said, “I’m not concerned about the inflation report. published today. The US leader also added that the stock market does not always accurately represent the state of the economy.

China’s stimulus hopes and expectations of a solution to the European energy crisis are also challenging the XAU/USD bears. In this regard, European Union (EU) leader Ursula von der Leyen’s plans for energy price caps and US Trade Representative Katherine Tai’s visit to the EU to meet the Deputy European Commission President Valdis Dombrovskis also favors cautious optimism.

Alternatively, hawkish Fed hopes and headlines around Taiwan are putting downward pressure on metal prices. Reuters mentioned that Taiwan is welcoming several foreign lawmakers to Washington to push sanctions against China, while the Financial Times (FT) said US lawmakers are gearing up for a vote on arms funding for Taipei.

Amid these games, US Treasury yields are dribbling around the multi-day high marked the previous day while S&P 500 futures are posting slight gains later.

Subsequently, the price of gold could witness inaction ahead of the US Producer Price Index (PPI) and US August Retail Sales on Thursday. Above all, next week’s Federal Open Market Committee (FOMC) will be a crucial event for pair traders to watch for clear guidance.

Technical analysis

The price of gold remains lower inside a two-week-old trend broadening formation called the megaphone.

That said, bearish MACD signals suggest further price weakness, but the lower line of the bullhorn indicated and an upward sloping support line from July 21 near $1,695 and $1,690 in that order could limit the metal’s short-term decline.

Alternatively, recovery moves can initially target the immediate support-turned-resistance line around $1,725 ​​before challenging the upper line of the technical formation near $1,738. The 200-SMA surrounding $1,750 also acts as an upside filter.

Overall, XAU/USD should remain on the bearish radar even though the downside margin seems limited.

Gold: four-hour chart

Trend: Limited decline expected

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