Home Forex Market Analysis XAUUSD Bulls Eye $1800 Amid Dollar Softness as USDCAD Tanks on Oil...

XAUUSD Bulls Eye $1800 Amid Dollar Softness as USDCAD Tanks on Oil Price Jump

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XAUUSD Bulls Eye $1800 Amid Dollar Softness as USDCAD Tanks on Oil Price Jump
  • US dollar is weak despite hawkish FED.
  • XAUUSD bounces back to form two month lows.
  • USDCAD tanks on dollar weakness and oil price jump.

The US dollar was on the defensive Thursday morning despite the Federal Reserve turning out hawkish in its latest policy meeting. The dollar index, which measures the greenback strength against the majors, pulled back to lows of 96.26 after touching two-week highs of 96.89 on Wednesday

The pullback in dollar strength comes on the heels of the Fed accelerating its asset tapering program to $30 billion per month. The central bank also kept the interest rate unchanged at 0.25%. However, it hinted at three quarter-point interest increases in 2022 and three in 2023.

The FED chairman Jerome Powell has reiterated that the economy no longer needs increasing amounts of policy support as the recovery remains on track. While the sentiments did fuel dollar strength, the greenback has given a good chunk of the gains and now remains on the defensive.

Gold rally

Gold upward momentum is increasingly building up in the aftermath of the greenback showing some weakness across the board. XAUUSD has powered to highs of $1785 after tanking to lows of $1752 following the FED decisions

Amid the pullback, the $1790 handle has emerged as a critical resistance level curtailing any upside action on the precious metal. A rally followed by a close above the critical resistance level should open the door for further price gains above the $1800 psychological level.

Chart showing XAUUSD bounce back

On the downside, failure to find support above the $1790 level could leave the precious metal vulnerable to a drop to lows of $1760, which is two months low and the next support level.

The bounce back in XAUUSD despite a hawkish Federal Reserve could as well indicate the metal has reached a bottom. In recent months, the precious metal has been under immense pressure on the dollar, rallying to 17-month highs.

With the FED policy decision now behind and the central bank expected to be on autopilot until its next active meeting in March, the precious metal could post substantial gains heading into yearend as a bounce-back play. Additionally, runaway inflation should continue to strengthen the case for Gold bulls as the metal is often seen as a hedge against runaway inflation.

Bulls shunning a hawkish Federal Reserve should continue to fuel the upward momentum on XAUUSD. However, the precious metal will once again be in the spotlight as the European Central Bank hits the wires with its policy decision. The ECB is expected to boost its regular asset purchases as a way of replacing the Pandemic Emergency Purchas program.

USDCAD pull back

Meanwhile, USDCAD retreated from three-month highs of 1.2932 in the aftermath of the hawkish FED report. The pair has retreated to lows of 1.2807 in the aftermath of the dollar coming under pressure despite the FED accelerating asset purchases and hinting of rate hikes next year.

Chart showing USDCAD Pull back

With the pair trading near the 1.2800 level, a breach of the key level could result in the pair sliding to lows 1.2727, the next substantial support level. On the flip side, the pair finding sport above the 1.2800 level could affirm the bullish biasness, resulting in the pair rallying further.

The slide in USDCAD comes on the backdrop of oil price bouncing back above the $70 a barrel level, all but fuelling the Canadian dollar strength against the dollar. Oil prices are up amid easing concerns that the Omicron variant will dent demand on triggering new restriction measures.

Going forward, concerns over the potential impact of the Omicron variant could significantly affect CAD sentiments in the market. During periods of uncertainty, market participants tend to shun riskier currencies such as the CAD in favor of safe havens such as the dollar.

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