FX.co ★ MMC | XAU/USD, GOLD

Gold (XAU/USD) draws some interest from the bulls for the second consecutive day, as on Wednesday bulls are seen waiting for an extended move higher above the $4,200 level to confirm continuation in the ongoing recovery from the eight-week lows struck earlier this week. A decline in US bond yields pushes back the US Dollar (USD) from its two-month high made on Tuesday and supports the non-interest-bearing metal. However, hawkish expectations around the US Federal Reserve (Fed) continue to cap upside ahead of key US economic data. The US PCE Price Index, the Fed's favorite inflation measure, and the Q2 GDP figure are due later today. This week, traders are also watching the US ISM Manufacturing PMI on Thursday and the well-known US Nonfarm Payrolls (NFP) report on Friday. In addition, markets are awaiting statements from prominent FOMC officials, which could provide clues on the US central bank's future monetary policy direction and, in turn, support/dampen the USD and Gold. The strategists at OCBC believe the markets' most immediate concern is “this week's US labour market report”, which “remains the key event risk”. They state that according to Bloomberg consensus, “nonfarm payrolls are expected to increase by 90,000 in September compared with 162,000 in August, while the unemployment rate is forecast to be stable at 4.1%.” Although they agree that “Fed Chairman Kevin Warsh highlighted the importance of the four-week average of initial jobless claims as a timely indicator of labour market conditions,” “payrolls continue to be the market's favourite gauge of labour market conditions.” Under these circumstances, OCBC strategists reiterate that “we maintain our base case expectation for a moderate USD rally into year-end.” They argue that “currently markets are pricing in nearly four Fed rate hikes over the next year, which seems too much unless it's the demand-driven inflation once again emerging as the main inflationary driver.” On the other hand, US Treasury rates retreated from their highest level in years owing to the plunge in crude oil prices to their lowest level in three weeks, as well as dovish statements from the President of the New York Federal Reserve, John Williams, saying that there was no rush to take any decision about the next move by the US Central Bank. Moreover, according to a Conference Board report, the US Consumer Confidence Index fell to 81.9 in September and missed market expectations, recording its lowest value since 2014. This helped it-taking mov supsupported According to CME Group's FedWatch Tool, traders believe the chances of another interest rate hike by the Federal Reserve this year are over 90%. Moreover, ongoing geopolitical risks, driven by US-Iran tensions, may further support the safe-haven Greenback, making traders reluctant to place bullish bets on the XAU/USD pair. In fact, the chances of reaching an agreement to stop the seven-month-old US-Iran war were dashed when US President Donald Trump rejected Iran's seven-day ceasefire plan. Furthermore, Qatar’s attempt to bring about an agreement between the US and Iran has not borne fruit so far this week. Further on the same note, US officials have noted that Trump is likely to issue an order for resumption of full-scale warfare after the midterm elections. This keeps the chances of escalation in Middle East tensions alive, making the argument for some USD dip-buying justified. The XAU/USD pair receives some support above the $4,100 area, which marks the 78.6% Fibonacci retracement level of the June-August rally. At the same time, the MACD oscillator is negative and signals ongoing bearish pressure, while the RSI at 40 shows weakness rather than overbought conditions. Consequently, the 61.8% retracement at $4,227 acts as an intermediate resistance zone before the 200-day exponential moving average (EMA) at $4,307 and mid-range Fibo. Retracement at $4,317. With XAU/USD trading below the 200-day EMA, any upswings are likely to remain capped. Higher on the price scale, the 38.2% Fibo. retracement at $4,406 and 23.6% retracement at $4,517 act as additional barriers. On the flip side, near-term support is seen around the 78.6% Fibo. Retracement at $4,100 and then the previous swing bottom at $3,937. A break of this area could lead to a decline back toward $3,937.