Gold Price Drops on Positive US Data, Tests Trend Line Support Ahead of FOMC
XAUUSD Drops on Positive Consumer Confidence Report
For the first time in five trading days, gold price finished lower in yesterday’s trading. XAUUSD $1,567.74 after opening at $1,581.65. The sell-off on gold price was triggered by the better-than-expected US data. According to the Conference Board, consumer confidence improved in January at 131.6 than in December when it printed at 128.2. It also beat forecasts which was for a reading of 128.2. The positive report may have given forex traders a sigh of relief after weeks of constantly-worrying headlines about the coronavirus.
Profit-Taking Ahead of the FOMC Rate Decision?
Additionally, yesterday’s price action may have also been driven by profit-taking ahead of the FOMC rate decision. As what my colleague Eno Eteng reported yesterday, the Federal Reserve is not expected to make any changes to its overnight deposit rate. The central bank had already cut rates three consecutive times in 2019 and policymakers may want to hold off for another month. This would give it time to assess the impact of its previous monetary policy decisions and ward off risks brought about by further easing.
Despite these expectations, the FOMC statement could still cause volatility on gold. Remarks about the economy, global growth, inflation, and the future direction of monetary policy could trigger a rally or sell-off on XAUUSD. The FOMC rate decision is scheduled for later today at 7:00 pm GMT.
We could see a muted price action on gold price ahead of the FOMC meeting later. On the 4-hour chart, we can see that XAUUSD had made its way back down to the trend line support (from connecting the lows of January 14, January 21, January 23, and January 24). This price, around $1,564.50, also coincides with previous highs and the 61.8% Fib level (drawing from the low of January 21 to the high of January 27).
A dovish FOMC rate decision (hints of further easing or sluggish economic growth) could be enough for XAUUSD to bounce off support. It may then re-test its recent highs around $1,588.50. On the other hand, an optimistic tone from Federal Reserve Chairman Jerome Powell could strengthen the dollar further and drive XAUUSD to its January 21 low at $1,546.15.