XAU/USD edges lower amid recovering US yields as markets await new catalysts

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• The XAU/USD trades near the $1,970 level, recording a loss of 0.40%.
• US yields recovered and traders await potential new catalysts to model their expectations on the next Fed moves on a quiet week. 
• The week’s highlights are the FOMC minutes on Wednesday.

In Monday’s session, XAU/USD is seeing 0.40% losses, trading mainly in the vicinity of $1,970. Key factors driving these changes include a slight recovery in US yields and an uptick in market caution as traders await the reveal of fresh catalysts to continue placing their bets on the Federal Reserve (Fed). In addition, markets continue assessing last week’s inflation data from the US and seek to see any clues in the Federal Open Market Committee (FOMC) minutes from the last November meeting which will be released on Wednesday.

In the last week, the yellow metal’s price gained momentum due to the increasing downward pressure on U.S. yields and the US Dollar due to the soft Consumer Price Index (CPI) figures from the US from October. On Friday, the 10-year yield dropped to 4.38% from its peak in late October at 5.02%  to the lowest level since late September. Similarly, the 2- and 5-year rates dropped to their lowest point since September, towards 4.80% and 4.35%, respectively.

On Monday, those rates recovered to 4.90%, 4.47%, and 4.46%, which seems to me to be applying pressure to the non-yielding metal. The question that arises now is if one month of positive inflation figures will be enough to end the Fed’s tightening cycle. Any new evidence of inflation picking up or the economy being overheated can fuel hawkish bets on the Fed, which could affect the price.

XAU/USD levels to watch

The technical indicators on the daily chart reflect uncertainty in the short-term momentum. Despite this, the Relative Strength Index (RSI) enjoys a pleasant sojourn in positive territory, indicating an intact buying momentum. The Moving Average Convergence Divergence (MACD) exhibits flat green bars, signifying a potential deceleration in the bullish charm but not necessarily hint at a complete trend reversal.

In addition, the price is trading just below its 20-day Simple Moving Average (SMA), but above 100-day and 200-day SMAs, suggesting a broader bullish bias. This seemingly contrasts with the bearish short-term sentiment inferred from a recent stall in bulls’ action. However, this outlook may also mean that the bulls are taking a breather after a 2.2% winning week before continuing their upward march. 

Support Levels: $1,940 (200-day SMA), $1,930 (100-day SMA), $1,900.
Resistance Levels: $1,970 (20-day SMA), $2,000, $2,020.

XAU/USD daily chart