Gold looks poised for a breakout above $1,300, which could lead to further technical buying next week, writes Fawad Razaqzada, Technical Analyst FOREX.com.
There are a number of factors supporting gold prices at the moment, most notably a big drop in the U.S. Dollar Index. The U.S. dollar has weakened sharply ahead of next week’s FOMC meeting amid growing expectations that the Fed will re-iterate the need to pause its hiking cycle.
We have been growing negative towards the greenback for a while now and this dollar sell-off does not surprise us at all. The sell-off has been blamed on a Wall Street Journal report, which suggests that the Fed could be taking a more cautious approach towards shrinking its huge balance sheet. Among the dollar pairs, EUR/USD has surged back to 1.14 after briefly breaking the 1.13 handle in the aftermath of the ECB policy decision yesterday.
As we mentioned previously, a dovish ECB was already expected but Mario Draghi was not exactly too dovish after all. So, the euro’s recovery makes sense as previously sentiment towards it was very negative. In addition to a weaker dollar boosting dollar-backed gold, you have the Chinese yuan rising on hopes over a resolution to the U.S.-China trade dispute. With a stronger renminbi, Chinese consumers can buy more gold. The fact that gold has refused to retreat meaningfully from the $1,295-$1,300 resistance levels suggests that the selling pressure has not been strong around this key hurdle.
As things stand, gold looks poised for a breakout above $1,300, which could lead to further technical buying early next week.
Source: TradingView and FOREX.com
