Gold price is testing a confluence of resistance ahead of the FOMC meeting due tomorrow. As of this writing, XAUUSD is trading at $1,695.29, down from its Asian session highs at $1,704.58.
Most market participants expect that there will not be any changes to the central bank’s interest rates. They will likely continue to remain between 0.00% and 0.25%. However, investors will be closely keeping tabs on how optimistic (or not) Fed Reserve Chairman Jerome Powell is about the economic recovery.
This is especially because the NFP report for May topped expectations significantly when it printed at 2.509 million versus the forecast which was for a decline of 7.750 million jobs. While the Bureau of Labor Statistics admit that there are some errors in the survey, the recent data is enough to make economists feel optimistic about the US recovery from the pandemic.
If Fed Reserve Chairman Powell echoes this sentiment, we could see XAUUSD trade lower. Alternatively, if he expresses concerns about the economy or hints at further easing, the dollar could weaken. Gold price may just then trade higher.
On the 4-hour time frame, it can be seen that gold price has retraced some of its losses. Drawing the Fibonacci retracement tool from the high of June 4 to the low of June 5, it can be seen that XAUUSD is currently trading around the 50% Fib level. It’s also worth pointing out that the current market price, around $1,696.50, also coincides with the falling trendline when connecting the highs of June 2 and June 4. Finally, a shooting star candlestick has formed. When you enroll in our free forex trading course, you will learn that many technical analysts consider this as a bearish confirmation signal. A strong close below the low for the past three days at $1,693.70 could mean that there’s more downside potential ahead. Near-term support for the commodity would be at $1,670.52. If there are more sellers, we could even see XAUUSD fall to the lows of April 7 at $1,642.14.
Alternatively, you should be wary of a strong bullish close above today’s highs at $1,704.58. Should this happen, resistance at the falling trendline will have been invalidated. It could also mean that there may be enough buyers left in the market to push gold price to its June 4 highs at $1,721.62.