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19.10.202123:14 Forex Analysis & Reviews: XAU/USD: Gold is waiting for action from the Fed. Corrective dollar decline is not a reason to buy

Exchange Rates 19.10.2021 analysis

The dollar was knocked out on Tuesday, and the rate has been declining for the 5th consecutive session. The US dollar index retested the initial support around 93.50. Intermediate support was marked at 93.18. With an increase in bearish sentiment, the index may attract bulls first at 93.18, then at 93.00 and 92.57.

The markets are dealing with a downward correction, which may develop into the area of 91.50, in the broader perspective, the index will remain positive. The fundamental picture is still on the side of the greenback. After correction, it can develop growth in the area of 96.00 on the index.

Gold revived against the background of the dollar's decline, trying to recover the losses incurred over the past two sessions. The XAU/USD pair reached a local low of $1,760 per ounce the day before. The precious metal managed to protect the support represented by the $1,765 rising trend line, although it was not easy.

Bulls have swallowed the bait, now their goal is a key barrier at around 1795. However, downside risks remain, and the bullish potential looks weak. Gold will continue to focus on the dynamics of profitability and general market sentiment.

It is already clear that on the way to recovery, the XAU/USD pair has encountered resistance of 1778 (horizontal 50-DMA). If the bulls still manage to overcome this barrier, then the convergence area of 100- and 200-DMA at $1,795 per ounce can be retested.

Exchange Rates 19.10.2021 analysis

Be that as it may, bulls should not give in too much to the wave of optimism, it would not be superfluous to be safe and remain cautious. A confident breakdown of support will bring into play the area in demand last week - 1750/1745. Next, the price of gold may go to multi-week lows – $1,722.

For the yellow metal, some tangible shifts for the better and great prospects are not expected. Since the beginning of the week, gold has been consolidating just above 1750, and over the past seven sessions, the nature of the market has basically not changed.

Previously, the growth of stagflationary risks played on the side of gold, now it is neutralized by the defusing of the crisis situation around Evergrande. The situation around the company has been stabilized, the Bank of China assured. There will be no domino effect from its actual bankruptcy, the financiers also explained.

In general, gold looks heavy, and it is difficult to move it from its place. Neither the statistics nor the publication of the Federal Reserve minutes succeeded in stirring up the precious metal and taking it away from the sideways movement.

Perhaps investors have taken a wait-and-see attitude. If so, then gold will move only after the Fed moves from words to deeds, that is, it will announce a reduction in incentives at the next meetings. At the very least, they will find out exactly what the Fed will say at the November and December meetings. Then it will be more clear in which direction gold will move.

If the Fed turns out to be softer than the markets predict, then gold will get an impetus to growth. On the contrary, harsh comments can send the price below $1,700 per ounce.

Natalya Andreeva,
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