Fundamental analysis of XAU/USD

Gold's upward momentum triggered by the Consumer Price Index data was halted, indicating a possible recovery in the range of 1945.00 - 1955.00 USD. Nevertheless, by the end of Friday's trading session, gold was up 1.65%, posting its biggest weekly gain since April.  The US Dollar Index (DXY) is showing signs of recovery after Friday's weekly decline, the largest since November, driven by US inflation data and concerns about the economy.

Gold prices hit their highest level since June 16, when the U.S. consumer price index posted its lowest annual rate in more than two years in June, spurring speculation that rate hikes may be over. Preparations for the Federal Open Market Committee's (FOMC) monetary policy meeting, where a 0.25% increase in the benchmark rate was forecast, are also contributing to downward pressure. In the quiet two weeks ahead of the FOMC meeting, the US dollar strengthened, further weighing on gold prices. Despite the quiet session, comments from the International Monetary Fund expressing concerns about inflation and the US dollar's inability to hold up reinforced the bearish sentiment on the XAU/USD pair. As the economic calendar thickens, market participants are keeping a close eye on Monday's release of the New York State manufacturing index and U.S. retail sales for June. There are also risk catalysts driving the short-term trajectory of gold prices.  

 In the short term, this suggests that gold prices will continue to fluctuate. If the Fed stops raising rates, it could trigger a sharp rise in gold prices. As inflation remains high, the market's focus on relative interest rate changes rather than absolute levels and the possibility of an end to the interest rate hike cycle could provide additional support for gold, especially as central banks continue to raise rates. The Federal Reserve and the European Central Bank (ECB) are expected to raise interest rates next week. However, the market expects a halt to U.S. rate hikes next year and another expected rate hike in Europe. Low interest rates often make loss-making assets such as gold more attractive. In addition, China's economy grew by just 0.8% in the second quarter, down from 2.2% in the previous quarter, prompting speculation of further stimulus measures that could have a negative impact on the economy. Therefore, despite a slight decline in gold prices due to a stronger US dollar, market sentiment is leaning towards gold prices rising in the near term. This is supported by the fact that the Federal Reserve may stop raising interest rates.

Technical analysis and scenarios:

From a technical perspective, the gold price (XAU/USD) is currently trading at 1955.00 and is in an uptrend as evidenced by the Alligator indicator. The Alligator's jaw (blue line) is below its lips and teeth (green and red lines), indicating that the market is bullish. The Awesome Oscillator (AO) and Accelerator Oscillator (AC) indicators are in the gray zone, signaling divergence, which usually hints at a possible trend reversal, but by itself is not a strong enough signal to open a position.

Main scenario (BUY)

Recommended entry level: 1969.50.

Take Profit: 1980.00.

Stop Loss: 1963.00.

Alternative scenario (SELL)

Recommended entry level: 1938.50.

Take Profit: 1915.00.

Stop loss: 1950.00.