XAU/USD consolidates near record highs as Fed looms

XAU/USD Current Price: $2,572.12

• The Federal Reserve is about to announce its monetary policy decision.
• A rate cut of 25 basis points has already been set, but officials could still surprise markets.
• XAU/USD down short-term, Fed to set tone.

Gold is hovering around $2,570 a troy ounce on Wednesday, unchanged on the day, as the Federal Reserve’s (Fed) monetary policy announcement approaches. The United States (US) central bank is expected to cut interest rates for the first time in four years after pushing them to record highs amid rising inflation in the wake of the pandemic. Policymakers are also weighing the effects of monetary restrictions on economic progress, but the market won’t hear it from them.

The Fed will also release its Summary of Economic Projections (SEP) with new forecasts for growth, inflation and unemployment and officials’ views on the future path of monetary policy. The latter could have a big impact on the US dollar as financial markets had already cut interest rates by 25 basis points (bps) ahead of the announcement.

In general, the more convenient the event, the more the US dollar will lose to its main rivals, while an unexpected hawkish outcome will likely have a bigger impact amid the surprise factor, benefiting the US currency.

XAU/USD Short Term Technical Outlook

From a technical point of view, the daily chart for XAU/USD shows a risk bias to the upside. The pair is near the all-time high of $2589.50 posted this week, while all moving averages are aiming higher, well below the current level. The closest is the 20 Simple Moving Average (SMA), providing support in the $2,520 price area. At the same time, technical indicators remain well above the median lines with uneven and limited directional strength.

In the short term, however, the risk is tilted to the downside. A directionless SMA 20 provides intraday resistance, rejecting advances. The 100 and 200 SMAs have partially lost their upside, well below the current level. Finally, technical indicators are aiming lower, with the Momentum indicator accelerating lower below its 100 line.

Support levels: 2,561.65 2,550.00 2,542.40

Resistance levels: 2,574.80 2,590.00 2,605.00