Fundamental analysis of XAU/USD

The gold price seems to be losing momentum and is currently trading around 1975.00 USD. Despite the slowing trend, precious metals continue to show positive dynamics for the third day in a row.

The Federal Open Market Committee's action to raise the interest rate by 25 basis points to 5.5% was in line with expectations. Commenting on the interest rate decision, Fed Chairman Jerome Powell noted that while inflation has eased somewhat since the middle of last year, achieving the Fed's 2% target remains a challenge. Interestingly, Powell did not rule out the possibility of leaving rates unchanged at the upcoming September meeting, creating the possibility of the Fed ending its rate hike cycle, which would likely limit any downward trend for precious metals as they are sensitive to rising interest rates. In addition, the first U.S. GDP report for the second quarter will be in focus, along with the monthly Personal Consumption Expenditure (PCE) report, durable goods orders and initial unemployment insurance data. These statistics could influence the trajectory of the US Dollar, providing short-term trading opportunities for gold.

In economic developments in Europe, the European Central Bank (ECB) is expected to raise interest rates by 25 basis points on Thursday. However, concerns about a slowdown in the Eurozone economy may cause the ECB to postpone further rate hikes. Traders will scrutinize all communications from ECB President Christine Lagarde looking for clues about the bank's monetary policy. Any hawkishness could increase gold's price momentum.

At the same time, China, the world's largest gold consumer, has hinted that it will move toward gold. It has added support to the country's real estate sector and launched various initiatives to boost domestic consumption amid a sluggish post-pandemic recovery. These moves are likely to support gold prices, and the development of China's new stimulus package is sure to be closely watched by gold traders.

In short, for now gold prices continue to be driven by economic data. Along with the movements of the global economy and central banks, traders should be vigilant and ready to react to short-term market fluctuations.

Technical analysis and scenarios:

At the time of analysis, the XAU/USD pair is at $1975.50. The currency pair has established significant support levels at 1969.50, 1962.10 and 1950.00, while resistance levels are seen at 2000.00, 1990.00 and 1985.00. The Alligator indicator is showing bullish behavior, indicating an ongoing uptrend. The Alligator's jaw is wide open and the jaw (blue line) is positioned under the lips and teeth (green and red lines). This placement indicates a strong uptrend with buyers dominating the market. However, both the Awesome Oscillator (AO) and Accelerator Oscillator (AC) are in the gray area, signaling divergence. Such a divergence usually means that the current trend is losing strength, although it is not a reliable signal to open a new trading position.

Main scenario (BUY)

Recommended entry level: 1985.00.

Take Profit: 1990.00.

Stop Loss: 1987.50.

Alternative scenario (SELL)

Recommended entry level: 1969.50.

Take Profit: 1962.10.

Stop loss: 1972.50.