Last week we had two major events on the economic calendar. The first was undoubtedly the FED’s decision to raise interest rates to 4%. The FED’s decision to raise interest rates by 75 bps to 4% caused a lot of volatility in the financial markets. In the immediate aftermath of the decision, the dollar lost to major currencies and commodities, but when the conference of FED chairman Jerome Powell began, the market turned around sharply, the dollar recovered and closed the day on a positive note.
Such a volatile reaction was due to the difference between the rather dovish statement published in tandem with the rate decision and the hawkish stance presented during the press conference.
Powell stated that there is “still a lot of work to be done” on rates, and that it is “very premature” to think about holding off on hikes. Adding to the hawkish tone of the press conference, Powell said the final interest rate could be higher than the committee expected in September, when the dot plot showed it would rise to 4.50-4.75% next year.
Bullish engulfing on the weekly chart
Clearly, the market was expecting a more dovish stance from Powell and gold was down nearly $50 per ounce. The next two days saw gold recovering and as a result, the week closed with an upward candle that established a bullish engulfing. This candlestick pattern on the chart may signal that the coming week will also turn out to be an upward one, especially as the 1615 level has already fended off sellers’ attacks three times.
Central banks buy with passion
The World Gold Council reported that central banks bought 399 tonnes of gold bullion in the third quarter, almost double the previous record for Q3. It is not clear which central banks bought but one can guess that, at current inflation levels, gold has become an attractive investment for banks where the spread between interest rates and inflation is large.
It can be assumed that fundamentally, gold is likely to gain in value as central bank interest rates slowly approach previously predicted maxima. On Thursday, 10th of November we wiil know the inflation in USA – it can be a volatile event for Gold.
And technically, what will it be like?
Analysing the weekly and H4 charts – there is a lot to suggest that technically we can also expect increases. On H4, the last candle formed a bullish engulfing formation. At the level of $1615, the price formed a triple bottom, which usually signals growths. The decisive factor may turn out to be overcoming the support and resistance level at $1680. If the market overcomes it, we can expect a move towards the nearest supply zone of $1728.
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The above analysis is based on the PA+MACD strategy, a detailed description of which you can read HERE . I will talk more about the PA+MACD strategy applied to these currency pairs during the live trading sessions which you can attend from Monday to Friday.
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