XAU/USD – Could a break below 1861 Trigger a massive fall?
XAU/USD Fundamental Analysis
Gold price is moving around $1885 per ounce +0.32% from its previous 24-hour level. The yellow metal recovered from one-month lowest level after hawkish expectations from Federal Reserve’s Chairman Jerome Powell’s speech entered the market. Market participants seem to be placing bets against the optimism regarding the economic shift. These were also backed by the US policymakers who favour the argument.
Meanwhile, gold prices were also affected by the easing of US-China tensions. The rush of the US diplomatic visit to China, along with the aggressive response of China to the US shooting down the balloon and calling it an attempt to spy, provoked the risk-off market sentiment and helped gold buyers to recover some of the previous gains. However, the recent comments on the matter from President Joe Biden put a floor under the metal prices. Biden reassured that the balloon episode was not harmful to the US-China ties.
The US Dollar Index (DXY) was down -0.06% on the day at 103.56. But, the upcoming Fed Chair speech in the American Trading hours will keep the volatility in yellow metal alive for the rest of the day. Given the progressive economic outlook, he is expected to maintain an optimistic tone. Furthermore, the hawkish Fed bets and Powell’s confirmation are anticipated to put pressure on Gold prices in the coming trading session.
XAU/USD Technical Analysis
Gold’s H2 chart is giving some bullish signals ahead of the Fed’s Chair speech. However, the metal might experience a fall after the speech. After the formation of long-legged Doji candles (highlighted in the circle), the reversal pattern has been confirmed. The first resistance (R1) at the $1881 level is critical to watch. If bulls succeed in moving past this level, gold might start its bullish momentum towards $1910.
It is also worth noting that the bias signal from Moving Average Convergence and Divergence (MACD) indicator, along with the Relative Strength Index (RSI) line near mid-level 50, are pointing towards the strength of the trend. Additionally, the price is currently moving above the 20-Day Simple Moving Average line, confirming the interest of buyers in the yellow metal.
If the precious metal breaks below this 20-Day SMA level, it could face first immediate support at the $1861 level. However, any break below will drag the prices further towards the critical support of the $1850 level. Overall, the idea is to wait right now and keep the watch. Moreover, taking a buy position on a break above 1881 and a selling position on a break below 1861 is advisable.
Daily Technical Levels
Pivot Point: 1869.87