Fundamental analysis of XAU/USD

In today's financial landscape, one of the most interesting events is taking place around the XAU/USD pair, with the Federal Open Market Committee (FOMC) meeting minutes, the employment report and, more importantly, the US inflation data playing an important role among the factors. These factors, especially the upcoming consumer and producer price inflation statistics, will have a significant impact on the market dynamics.

 Amid the ongoing debate over the Federal Reserve's future direction, with economic data coming in stronger than expected despite a pause in the 15-month campaign to raise interest rates. Either the Fed returns to raising rates significantly, or it maintains a smaller increase - by a quarter point - but keeps rates higher for longer.  This dilemma, fueled by persistently high inflation, clouds the Fed's policy outlook. Despite some stabilization, inflation remains well above the 2% target, creating a tight balance sheet for the Fed. This precarious position could force central banks to make decisions that could trigger a rebound in inflation, damaging the global economy and causing more crisis or chaos. 

However, gold prices rose on Wednesday as the dollar and bond yields fell. The dollar index fell to its lowest level since May 11, making gold more attractive to holders of other currencies, and the yield on the 10-year U.S. Treasury bond fell to its lowest level. Almost to the lowest level this week. Investors' attention is now focused on the upcoming US consumer price data, which should reflect bearish pressure. Meanwhile, market participants expect the Fed to raise rates by 25 basis points at its July 25-26 meeting. Despite these forecasts, however, significant deviations in inflation readings could significantly alter interest rate projections. 

 Gold prices (XAU/USD) hit a three-week high near the $1941.00 level, pressured by consumer price index data on the U.S. dollar (DXY) index. The U.S. economy is expected to slow down. Investors are cautious ahead of the Q2 inflation and earnings reports, but market sentiment is currently upbeat. In addition, the yield on 10-year US Treasuries fell slightly to around 3.96%. Investors will now focus on future inflation data, where core inflation and monthly inflation are expected to remain at 0.3%. Meanwhile, overall CPI and annual core CPI are expected to decline by 3.1% and 5.0% respectively. Investors are also looking forward to the release of the Fed's Beige Book.

Technical Analysis and Scenarios:

Based on the current technical analysis on the XAU/USD pair, the market is in an uptrend as indicated by the Alligator indicator depicting a "hungry" condition with a wide open mouth, jaw (blue line) below the lips and teeth (green and red lines). However, both the Awesome Oscillator (AO) and Accelerator Oscillator (AC) are in the gray zone, indicating divergence. This scenario is not a reliable signal to open a position and suggests that traders should be cautious.

Main scenario (BUY)

Recommended entry level: 1953.00.

Take Profit: 1980.00.

Stop Loss: 1932.00.

Alternative scenario (SELL)

Recommended entry level: 1915.00.

Take Profit: 1893.00.

Stop loss: 1915.00.