XAU/USD maintains upward pressure near $2,600

XAU/USD Current Price: $2,589.77

• The Federal Reserve’s decision to cut interest rates has put the US dollar on a bearish trajectory.
• The Bank of Japan will announce its monetary policy decision on Friday.
• XAU/USD has resumed its advance and aims to extend gains above $2,600.

Spot gold recovered its bullish tone early Thursday and traded as high as $2,594.75 a troy ounce, holding on to gains and changing hands at around $2,590 in mid-US session. Stock markets are reflecting optimism that is hurting demand for the US dollar following the Federal Reserve’s (Fed) monetary policy announcement. The Fed cut interest rates by more than expected on Wednesday, kicking off a new monetary policy cycle with a 50 basis point (bps) cut in the benchmark rate.

The message from Fed officials, however, was not as conciliatory as expected. As usual, Chairman Jerome Powell maintained a cautious tone, refraining from explaining future actions, and repeating decisions will depend on future data. The US dollar moved back and forth on the news, but resumed its decline at the Asian open as global indices headed north, hailing lower borrowing costs in the world’s largest economy.

Encouraging data from the United States (US) provided temporary USD support ahead of the Wall Street open. The country published the Q2 Current Account, which recorded a deficit of $266.8 billion. Initial jobless claims for the week ended September 13 improved to 219,000, while the Philadelphia Fed Manufacturing Survey was printed at 1.7 in September, much better than the previous -7 or the expected -1.

The Bank of Japan (BoJ) will announce its monetary policy decision early Friday, and market participants do not anticipate any change in monetary policy. Any announcement that diverges from expectations is likely to bring volatility back and affect the price of gold.

XAU/USD Short Term Technical Outlook

XAU/USD is poised to retest its recent highs and even extend its gains despite positive market sentiment as investors dump the USD. Technical readings on the daily chart support such a scenario, as technical indicators are heading firmly north, well above their median lines. At the same time, all moving averages are pointing north, with the 20 Simple Moving Average (SMA) providing dynamic support around $2,527.

The short-term picture is also optimistic. On the 4-hour chart, technical indicators have extended their advances within positive levels, albeit with limited upside as the XAU/USD pair is developing below its recent highs. Finally, the 100 and 200 SMAs are gaining upward traction well below the current level, while a flat 20 SMA is drawing intraday buyers in the $2,570 region.

Support levels: 2,574.80 2,561.65 2,550.00

Resistance levels: 2,605.00 2,620.00 2,640.00