XAU/USD pulls back sharply as investors seek high-yielding assets

XAU/USD Current Price: $2,443.88

• The US consumer price index came in slightly weaker in July.
• Market participants continue to beat the Federal Reserve and will cut rates in September.
• XAU/USD could extend its slide once clear below $2,438.80, a Fibonacci support level.

The US dollar started the day on the back foot, losing ground to most of its major rivals, as bullish investors raised bets on a future rate cut by the Federal Reserve (Fed) on Tuesday. The United States (US) released weaker-than-expected inflation figures before finally releasing July’s Consumer Price Index (CPI) on Wednesday.

According to the Bureau of Labor Statistics (BLS), the CPI rose 2.9 percent annually in July, down from 3 percent in June. The annual core CPI, which excludes volatile food and energy prices, rose 3.2 percent, below 3.3 percent previously, though in line with expectations. Finally, inflation rose 0.2% on a monthly basis, as expected. The numbers initially sent the USD lower, though not enough to trigger relevant breakouts.

According to XAU/USD, the pair hit a high of $2,479.80 on the news, but later headed south as demand for high-yielding assets weighed on the shiny metal. The pair finally fell after the Wall Street open as the Dow Jones Industrial Average (DJIA) and the S&P500 hit new weekly highs.

For the most part, the US CPI numbers confirmed what the market is hoping for: that the Federal Reserve (Fed) will cut interest rates at its September meeting, not only because of easing inflation, but also because of the risk that high rates presents for economic growth.

XAU/USD Short Term Technical Outlook

Technically, the daily chart for XAU/USD suggests that bearish potential remains limited. The pair found an intraday low around the 23.6% Fibonacci retracement of the June/July rally at $2,438.80, now holding above the level. At the same time, technical indicators have lost their upward power, but remain in positive levels. Only the Relative Strength Index (RSI) has turned south, but remains far from confirming another move south. Finally, XAU/USD continues to develop above all of its moving averages, with the 20 Simple Moving Average (SMA) now fixed at around $2,417.50.

However, technical readings on the 4-hour chart show that the slide may continue, especially if XAU/USD slips below the aforementioned Fibonacci support. Technical indicators have pulled back sharply from near overbought values ​​and are currently hovering around their midlines, partially losing bearish momentum but still heading south. At the same time, XAU/USD dipped below the 20 SMA, which is around $2,455.00. The 100 and 200 SMAs remain below the current level, somehow suggesting that a steeper decline is not yet on the cards.

Support levels: 2,438.80 2,4260.90 2,438.80

Resistance levels: 2,458.70 2,471.10 2,483.70