Gold Price Forecast: XAU/USD holds steady above $1,650 ahead of the key Fed decision

• Gold edges higher for the second straight day amid modest USD weakness.
• Hopes for a less hawkish Fed continue to exert pressure on the greenback.
• The upbeat US ADP report fails to impress the USD bulls or provide impetus.
• The market focus remains on the crucial FOMC monetary policy decision.

Gold gains some positive traction for the second successive day on Wednesday and maintains its bid tone through the early North American session. The XAU/USD is currently placed near the top end of its daily range, just above the $1,655 level, as traders keenly await the highly-anticipated FOMC monetary policy decision.

In the meantime, expectations for a less hawkish Fed prompt fresh US dollar selling, which, in turn, is seen offering some support to the dollar-denominated gold. Market participants expect that the US central bank might slow the pace of its rate-hiking cycle amid the deteriorating outlook for the US economy. Even the upbeat ADP report, showing that private-sector employers added 239K jobs in October against 193K expected, fails to boot the USD.

Despite the supporting factor, the XAU/USD lacks bullish conviction ahead of the crucial central bank event risk. The Fed will announce its policy decision later during the US session and is expected to deliver another supersized 75 bps rate hike for the fourth time in as many meetings. The market focus, however, will remain glued to the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference.

Investors will look for fresh clues about the pace of future policy tightening by the Fed, which will play a key role in influencing the USD price dynamics. This, in turn, will help determine the next leg of a directional move for the non-yielding gold. The current market pricing indicates over a 50% chance of a 50 bps Fed rate hike move in December. A more hawkish signal will set the stage for the resumption of the recent bearish trend for the XAU/USD.

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GBP/USD remains stuck between two key DMAs ahead of central banks’ bonanza

• GBP/USD starts November on the right footing amid USD weakness, risk flows.
• Fed and BOE are set to hike policy rates by 75 bps each this week.
• Cable is likely to extend range play between 100 and 50DMAs.

GBP/USD is consolidating the rebound above 1.1500 so far this Tuesday, kicking off November on the right footing. Investors brace for the critical Fed and BOE rate hike decisions, with both the central banks set to announce 75 bps rate increases later this week.

Ahead of the central banks’ bonanza, investors are breathing a sigh of relief, thanks to the FX market repositioning and the rally in Chinese stocks. The risk-on market environment is boding well for the higher-yielding pound sterling at the expense of the safe-haven US dollar.

Attention turns towards the US ISM Manufacturing PMI release, although not much reaction is expected on the data release unless the figure disappoints expectations by a wide margin. Meanwhile, the UK S&P Global Final Manufacturing PMI improved to 46.2 in October vs. 45.8 expected and the first reading of 45.8.

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 EUR/USD Price Analysis: Further gains on the cards above 0.9900

• EUR/USD extends the decline to the vicinity of 0.9900.
• The multi-month support line near 0.9900 holds the downside.

EUR/USD comes under further pressure and trades closer to the 0.9900 neighbourhood on Monday.

The 0.9900 region, where the 8-month support line and the 55-day SMA converge, emerges as a quite decent contention zone for the time being. While above this region, the pair could attempt another visit to the October top near 1.0100 (October 27).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0495.

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Gold Price Forecast: XAUUSD pressured as core PCE jumps, justifying further Fed action

• Gold price records a fresh three-day low spurred by a strong US Dollar.
• The Fed’s preferred gauge for inflation, the Core PCE, smashed estimates, justifying additional action.
•  US Treasury bond yields jumped, with the 10-year eyeing to recoup the 4% threshold.

Gold price slides and extends its losses below $1650 due to stubbornly high US inflation reported namely the Core Personal Consumption Expenditures (PCE), the Federal Reserve’s favorite gauge of inflation, which increased more than estimates, bolstering the US Dollar. Therefore, the XAUUSD is trading at $1641.62, diving 1.23%, eyeing the weekly lows of around $1638.

The Fed’s gauge of inflation justifies additional tightening

On Friday, the US Commerce Department revealed that September’s US inflation, as measured by the Core PCE, which strips volatile items like food and energy, jumped 0.5% MoM, higher than the previous reading, while annually based, escalated by 5.1%, above 4.9% forecasts by street’s analysts. In a separate report, the Employment Cost Index (ECI), an indicator used by the Fed in addressing inflation on wages, increased by 1.2% in the July-September period, as reported by the Department of Labor.

Given the backdrop, the so-called Fed pivot narrative could be tossed away as inflation remains stubbornly high and salaries are rising, despite the Federal Reserve’s effort to tame inflation.

Of late, additional US economic data was reported, with the University of Michigan (UoM) Consumer Sentiment unchanged at 59.9. Consumer’s inflation expectations for the 1-year horizon easied from 5.1% to 5%, and for a 5-years and beyond, were unchanged at 2.9%.

US Dollar bolstered on PCE data, Federal Reserve meeting eyed

After the data was released, the XAU remained on the defensive, as the reasons above will justify further Fed tightening. The US Dollar Index, a measure of the buck’s value against six currencies, is up 0.20%, at 110.78, while US Treasury yields, namely the 10-year benchmark rate, recover five bps up at 3.973%.

In the meantime, Wall Street holds to gains amidst a decent earnings season, keeping US equities in the green.

Now market participants turn to the next week’s Federal Reserve Open Market Committee (FOMC), in which most analysts expect the Fed to hike rates by 75 bps, as reported by the CME FedWatch Tool, with odds at an 84.5% chance. However, December’s meeting is split between 50 or 75 bps, with the majority of the investors

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EUR/USD Price Analysis: Next on the upside comes 1.0100

• EUR/USD comes under renewed downside pressure well below parity.
• The resumption of the bid bias targets the October top near 1.0100.

EUR/USD extends the corrective downside to the 0.9930/25 band on Friday.

In case bulls regain the upper hand, the surpass of the 1.0100 zone could spark a more serious recovery in the short-term horizon. That said, the immediate barrier is now expected at the September top at 1.0197 (September 12) ahead of the August peak at 1.0368 (August 10).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0502.

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GBP/USD could now test the 1.1760 level – UOB

GBP/USD remains firm and could extend the upside momentum to the 1.1760 region in the next weeks, suggest Market Strategist at UOB Group Quek Ser Leang and Economist Lee Sue Ann.

Key Quotes

24-hour view: “While we expected GBP to strengthen yesterday, we were of the view ‘1.1600 is unlikely to come into view for now’. In other words, we did not expect the strong surge that sent GBP to a high of 1.1639. Upward momentum is still strong and GBP is likely to rise further, albeit likely at a slower pace. Resistance levels are at 1.1700 and 1.1760. The latter level is unlikely to be challenged today. Support is at 1.1590 but only a break of 1.1540 would indicate that GBP is not strengthening further.”

Next 1-3 weeks: “When GBP was trading at 1.1300 two days ago (25 Oct), we noted that it is mildly supported and could edge higher. After GBP soared, we highlighted yesterday (26 Oct, spot at 1.1460) that the strong boost in momentum is likely to lead to further strength. We indicated that the next resistance is at 1.1600. GBP took out 1.1600 in London trade yesterday and surged to a high of 1.1639. The price action suggests GBP is still strong and is likely to strengthen further. The next level to monitor is at 1.1760. The GBP strength is intact as long as it does not break the ‘strong support’ at 1.1440 (level was at 1.1310 yesterday).”

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US: International trade deficit widens to $92.2 billion in September

• International trade deficit of the US widened in September.
• US Dollar Index stays deep in negative territory but holds above 110.00. 

The data published by the US Census Bureau showed on Wednesday that the US international trade deficit widened by $4.9 billion to $92.2 billion in September from $87.3 billion in August.

"Exports of goods for September were $177.6 billion, $2.8 billion less than August exports," the publication further revealed. "Imports of goods for September were $269.8 billion, $2.2 billion more than August imports."

Market reaction

The US Dollar Index recovered slightly from multi-week lows it touched earlier in the day and was last seen losing 0.45% on the day at 110.38.

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