Categories: Markets

Gold Price Forecast: XAU/USD bears take critical structure after ECB meeting

  • The price of gold fell despite the combination of the Federal Reserve and the European Central Bank.
  • The US dollar is trying to correct itself from multi-week lows.
  • The US Non-Farm Payrolls could be a major event for the price of gold and the US dollar.

The price of gold is on the verge of a significant drop in the next few days. As of this writing, the XAU/USD pair is trading 1.85% down and has already done most of the legwork for a move lower. In analysis previousa bearish case has been made given the length of the bullish rally and the recent break in the bullish structure of the Gold price is compelling.

The price of Gold has fallen from a bull cycle high reached the same day of $1,959.77 and has hit a low of $1,911.87, so far. However, the price of gold has broken $1,918 and if there is a close below on a daily basis, the bears will have left a mark on the charts for next week. See below the technical analysis of the price of Gold.

meanwhile, this week has been a game of two halves with a number of fundamental factors affecting both the US dollar and the price of gold. We now enter overtime with Non-Farm Payrolls possibly being the deciding factor for both assets.

The Federal Reserve and the European Central Bank did little to support the price of gold.

First, the Federal Reserve event, Fed, concluded with a dovish slope that plunged the US dollar to fresh bear cycle lows of 100.82 according to the DXY index that followed dovish rhetoric from Federal Reserve Chairman Jerome Powell , when he said that he is seeing signs of disinflation. Consequently, US Treasury yields fell sharply which is bullish for gold as it offers no interest. The yield on the 10-year US Treasury fell to a low of 3,334%.

The Federal Reserve raised its interest rates by 25 basis points, to 4.50%-4.75%, as expected. In the view of Commerzbank economists, the Federal Reserve is unlikely to do much more before hitting its rate ceiling, and that sentiment weighed on the US dollar.

Then, however, the European Central Bank (ECB) came in with less harsh rhetoric than Euro bulls would have expected, which plunged the Euro, supporting the US Dollar, and driving the price of Gold lower for the day after having previously touched a maximum of 10 months.

Still, gold markets are coming to the point that while the pace of inflation in the United States of America may be trending lower, the Federal Reserve will have a much harder time getting back to its desired 2% target given factor in the tight labor market, which brings us to Friday’s Non-Farm Payrolls.

Nonfarm Payrolls, Gold Price Expectations

The US labor market and non-farm payrolls are a key component of the US interest rate outlook. Analysts at TD Securities expect payroll growth to remain broadly unchanged from December, with a solid increase of 220,000 in January: “Both the unemployment rate and average hourly earnings should have held steady – the former at 3.5%, the lowest level in decades. Note that the January employment report will also include major revisions to business survey data for 2022,” they added.

This result could fuel the correction of the dollar from the lows of the bearish cycle and, therefore, would be expected to weigh on the price of gold. However, a weaker report, TD Securities analysts warn, or a “signal of weakness will bolster” risk sentiment, which could be bullish for gold and bearish for the USD.

Gold technical analysis

Gold price is breaking out of the structure, (BoS) on the daily chart and a correction of the daily bearish momentum could lead to further selling pressure from the bears. However, a commitment by gold price bulls above the 4-hour resistances at $1,920/$30 could leave the bulls in play for the foreseeable future:

Everything will be revealed for the price of gold on the US Non-Farm Payrolls event on Friday one way or another.

Source: Fx Street

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