Gold Price Forecast: Bullish reversal triggered by US Dollar sell-off

• Gold price breaks out of descending parallel channel as market mood improves.
• US Dollar was sold off on a mix of soft US data and improving Chinese PMI numbrs.
• ISM Manufacturing and Services PMI releases still awaited for fresh impulse on XAU/USD.

Gold price has rallied in the first half of the trading week, breaking out of a bearish trend that had dominated XAU/USD price action for most of February, following a surprisingly hot US Nonfarm Payrolls report. 

US 10-year Treasury bond yields faced once again a super-thick resistance at 4%, which is putting a hard cap on further US Dollar upside in the past trading days. While US 10-year T-bond yields are unable to break above this level, Gold price bulls should have the edge.

Gold news: Softer US inflation expectations, improving Chinese PMIs support XAU/USD

Soft data from the United States, led by decreasing inflation expectations in the CB Consumer Confidence report released on Tuesday, triggered some profit-taking on the US Dollar longs, as the reading might somewhat ease the pressure on the Federal Reserve to increase its interest rate hike path again. 

This was followed on early Wednesday by higher-than-expected Purchasing Managers Index (PMI) readings in China, which improved the market mood in Asia. The first trading day in the month implies that a whole bunch of PMI surveys will be out around the world, which should bring fresh impulse to Gold price action.

United States Manufacturing and Services PMIs on the way

The Institute of Supply Management (ISM) will publish the Manufacturing PMI and the Services PMI on Wednesday and Friday, respectively, both at 15 GMT. 

If the ISM Services PMI report reaffirms that rising wage costs are feeding into accelerating price pressures in the sector, the US Dollar is likely to hold its ground against Gold. Hence, the Prices Paid Index component will be watched closely by market participants.

It's worth noting, however, that the CME Group FedWatch Tool shows that markets are fully pricing in at least two more 25 basis points Federal Reserve rate hikes in March and May. Additionally, the probability of the Fed holding the policy rate unchanged in June stands at 25%.

The market turnaround has confirmed that the US Dollar does not have a lot of room on the upside, at least until the February jobs report and inflation data confirm or refute one more 25-bps hike in June.

In the meantime, investors are watching the US Treasury bond yields. 4% aligns as key resistance for the 10-year US T-bond yield and there could be a technical correction if that level stays intact. In that scenario, Gold price could turn north due to the inverse correlation with the US Treasury yields.

Gold price confirms Falling Wedge reversal pattern

Dhwani Mehta, Senior Analyst at FXStreet, reports the confirmation of the previously advised Falling Wedge pattern, which correctly hinted at a bullish reversal, and points at potential target levels for Gold price bulls:

Gold price in 2023: Up-and-down action

Financial markets have been a two-tale story for the early part of 2023, in which Gold price has reflected in its price action like no other asset. XAU/USD rode an uptrend during all of January with the market optimism about inflation slowing down and constant Federal Reserve dovish talk, only to see a drastic turnaround back to the old dynamics in February after a hot US Nonfarm Payrolls (NFP) report. The US economy adding more than 500K jobs in the month of January shifted the market expectations for the Fed easing its monetary policy, and the US Dollar has come back to the market King throne.

Gold price opened the year at $1,823.76 and reached a year-to-date high of $1,960 on February 2, right in between the first Federal Reserve meeting of the year and the surprising release of the US jobs report for January. Gold price went on a big downtrend from there, reaching year-to-date lows just above $1,800, where it found support. 

Gold price daily chart