XAUUSD: Fed Rate Cut Prospects Cushion Market Downturn

4 Jun

During the European session on Tuesday, gold is trading in negative territory, erasing some of the recovery gains made the previous day. However, the downside appears to be limited due to rising expectations that the Federal Reserve (Fed) will cut interest rates later this year. These expectations have been strengthened by disappointing US macroeconomic data released on Monday, leading to speculation that the Fed may adopt a more accommodative monetary policy.

This anticipation has caused the US Dollar (USD) to fall to its lowest level in nearly two months, providing ongoing support for gold, a non-yielding asset. A weaker USD makes gold more affordable for holders of other currencies, thus enhancing its attractiveness.

From a technical analysis standpoint, gold remains within a buying opportunity zone. This perspective follows a retest of the 50% Fibonacci retracement level, coupled with a divergence, suggesting the potential for an upward trend. The 50% Fibonacci level is often viewed as a significant support area, and the observed divergence implies that selling pressure might be decreasing, making it a strategic moment to consider a long position.

In essence, despite gold's current lower trading position, the broader macroeconomic environment and technical indicators point towards a positive outlook for a long position. The anticipated interest rate cuts by the Fed and the resulting weakness in the US Dollar are likely to act as supportive factors for gold, bolstering its price in the near future.