- The US dollar softens at 16-month highs.
- Gold is under pressure below $1800.
- USDCAD prints three-day losses on oil price action.
The US dollar eased Thursday morning slightly but remained elevated at 16-month highs against other major currencies. The dollar index, which measures the greenback strength fell from highs of 96.93 to about 96.71 as hawkish remarks from the Federal reserve meeting capped the losses.
The pullback on dollar strength came at the backdrop of treasury yields also edging lower. Amid the retreat, the dollar has strengthened by about 2.77% this month amid growing bets that the FED will hike interest rates sooner to help clamp down on runaway inflation. The market has already priced in a rate hike as early as the first quarter of next year.
Gold technical analysis
Amid the dollar softness, gold was in a recovery mode after coming under pressure and dropping below the $1800 level, to three weeks lows of about $1793. The precious metal has come under immense pressure in recent days as the dollar continues to strengthen.
Gold prices have edged lower on open interest, rising to fuel the sell-off in recent days. Volume on the precious metal has also shrunk significantly, affirming a buildup in bearish pressure.
XAUUSD has since found support above the $1790 level from where bulls are trying to pile pressure. A rally followed by a close above the $1800 should affirm a bounce back following the recent sell-off.
On the flip side, a sell-off followed by a breakout below the $1790 could pave the way for bears to fuel a drop to $1770, the next substantial support level.
Gold price drivers
Gold price action is highly dependent on the action in the bond markets. XAUUSD has edged lower for five consecutive days on treasury yields edging higher. However, the 10-year yield struggling to power through the 1.70% level has once again triggered renewed demand on the precious metal.
Additionally, gold sentiments have taken a significant hit in recent days amid suggestions that the FED will hike interest rates as early as next year to curtail inflation that is getting out of hand. The prospects of a much faster taper of monetary policy have also continued to fuel dollar strength, consequently sending XAUUSD lower.
Gold traders will pay close watch to COVID woes across the board. Austria and Netherlands recording record number of cases and Germany triggering multiple warnings are already affirming suggestions that the pandemic is far from over. Escalating COVID cases could trigger renewed buying pressure on the dollar, which could result in XAUUSD edging lower.
Meanwhile, USDCAD edged lower from two-month highs as the Canadian dollar attracted some bids amid dollar weakness across the board. A Drop below the 1.2650 level has opened the door for bears to fuel a drop back to the 1.2620 level.
The loonie cheers against the greenback, which is sending the USDCAD pair lower, stems from mild gains on the WTI oil. Oil prices are holding steady near the $80 a barrel level as the market continues to shrug off the impact of the US and other major consumers to release some oil stocks in the market to combat oil price spikes.
However, investors are extremely cautious waiting to see how the major oil producers will react following the emergency crude releases. There are already suggestions that OPEC members will push to cut output targets to counter US action.
Price action in the oil markets is likely to sway traders’ sentiments on the USDCAD, given that oil is Canada’s biggest export. In addition, the USDCAD may remain sidelined amid the thanksgiving data holiday and light calendar.