Gold has extended its downside into fresh bear cycle lows as the US dollar soars.Meanwhile, the price is reaching a key area on the daily chart where bulls will likely emerge.
At $1,739.31, the gold price is underwater by some 1.4% in the North American afternoon session and after the release of the Federal Open Committee Minutes which underpinned the prospects of a 50 or a 75 basis point interest rate hike at this month’s meeting.
The minutes failed to energise what has turned out to be a relatively quiet session on Wednesday although stocks on Wall Street have risen with the S&P 500 now over 0.6% higher for the day. US stocks gyrated ahead of the minutes but have moved higher given that there was little in the detail that ensures an uber hawkish path in the latter half of the year.
Additionally, the minutes did not necessarily cement another sure 75 basis points as soon as July, leaving just a 50bp rate hike on the table still as well. While the minutes don’t mention the word “recession,” there was an acknowledgement that the interest rate hikes could have a bigger than anticipated dampening effect on the economy. Another hike this month was flagged but the Fed’s chairman, Jerome Powell, would not commit to another 75 bp move in the presser at the June meeting.
However, according to CME Fed watch, the markets now see a 90.3% probability of another interest rate hike of at least 75 basis points at the conclusion of this month’s two-day meeting, the last such meeting on the date book until the fall. This has supported the greenback which rose to fresh 20-year highs on Wednesday, sinking the euro that has tumbled to a new two-decade low. The dollar index (DXY), which tracks the greenback versus a basket of six currencies, burst through 107 the figure, sending the euro below 1.0200 vs the greenback for the first time since December 2002.
Gold price analysis
Gold is trading below the rising supporting trendline on the monthly time frame but the critical fractal lows are located at $1,676.Meanwhile, however, the price is reaching a key area on the daily chart where bulls will likely emerge. A correction to mitigate the imbalance of bids in this sell-off could see the yellow metal correct with a 50% mean reversion on the cards.
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