Gold Weekly Forecast: XAU/USD could test 200-day SMA on hot US CPI

Surging US yields didn’t allow gold to gain traction this week.US inflation report could impact the dollar’s market valuation significantly.

XAU/USD’s technical outlook suggests that sellers could dominate the action in the near term.Gold fell sharply at the beginning of the week and touched its weakest level since mid-February at $1,850. Although the yellow metal managed to stage a rebound in the second half of the week, the broad-based dollar strength didn’t allow XAU/USD to snap its two-week losing streak. Ahead of next week’s key US inflation data, gold might find it difficult to make a decisive move in either direction. 

What happened last week?

The risk-averse market atmosphere provided a boost to the greenback on Monday and the US Dollar Index, which tracks the dollar’s performance against a basket of six major currencies, erased the losses it suffered the previous Friday. Chinese PMI data revealed that the activity in the private sector continued to contract in April. Additionally, Beijing announced a ban on all restaurants and ordered residents to provide proof of a negative COVID test to enter public venues, further weighing on sentiment. Finally, the data from the US showed that the manufacturing sector expanded at a softer pace than expected in April, but it had little to no impact on the dollar’s valuation.

Ahead of the US Federal Reserve’s policy announcements, markets remained relatively quiet on Tuesday and gold fluctuated in a tight range below $1,900 after having lost nearly 2% on Monday.

On Wednesday, the FOMC hiked its policy rate by 50 basis points to the range of 0.75%-1.00%, as expected. The Fed also unveiled that it will begin trimming the balance sheet on June 1, starting with a $47.5 billion cap on monthly runoff and rising to $95 billion monthly after three months. Experts were anticipating the US central bank to reduce its holdings by $95 billion from June. 

During the press conference, FOMC Chairman Jerome Powell dismissed the possibility of 75 basis points rate hikes in the upcoming meetings, saying that they were not “actively considering” them. Furthermore, Powell refrained from determining what the neutral rate would be and said that they had a good chance for a “softish landing.”

The benchmark 10-year US Treasury bond yield turned south after the Fed event while the greenback came under strong selling pressure, opening the door for a decisive rebound in XAU/USD. With the dollar selloff picking up steam during the Asian trading hours on Thursday, gold climbed to a five-day high of $1,909 but ended up closing the day in negative territory at $1,877.

Gold technical outlook

The technical outlook suggests that gold’s bearish bias remains intact despite the modest rebound witnessed in the second half of the week. The Relative Strength Index (RSI) indicator on the daily chart stays below 50 and the price struggles to pull away from the 100-day SMA, which is currently located at around $1,880.

In case XAU/USD starts using $1,880 as support, it could extend its recovery toward $1,900. Only a daily close above the latter could open the door for additional gains toward the $1,920/$1,930 area (Fibonacci 50% retracement of the latest uptrend, 20-day SMA, 50-day SMA).

On the downside, key support seems to have formed at $1,860 (static level). In case this level fails, gold is likely to test the 200-day SMA at $1,840. 

Gold sentiment poll

The FXStreet Forecast Poll shows that almost half of polled experts see gold edging lower next week. The one-month outlook, however, points to a bullish shift with the average target sitting at $1,925.

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