XAU/USD has a chance to drop below $1,900 as DXY strengthens

• Gold price looks vulnerable around $1,900.00, further declines expected after breakout of consolidation.
• DXY has risen above 102.00 despite weakness in US Durable Goods Orders.
• The formation of an inverted pennant predicts certain weakness.

Gold (XAU/USD) is hovering in a tight range of $1,891.56-$1,911.31 since Monday after a strong sell-off from Friday’s high of $1,955.71. Gold prices are currently stabilizing in a concise range, but price action is favoring an extreme imbalance to the downside amid the US Dollar Index (DXY) rally.

Rising expectations of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) in May is pushing DXY higher like there is no tomorrow. The asset has risen firmly above the 102.00 round level resistance. Despite poor economic data performance, DXY is climbing higher. The US Census Bureau reported Tuesday that monthly durable goods orders were 0.8% lower than the market consensus of 1%. Therefore, it would not be wrong to state that the increased odds of a giant rate hike by the Fed have breathed fresh blood into DXY, and are also forcing gold prices to remain vulnerable since recent trading sessions. .

Going forward, investors will focus on Thursday’s US Gross Domestic Product (GDP) numbers. A preliminary estimate of annual US GDP of 1.1% suggests a lower than previous return of 6.9%.

Gold Technical Analysis

On an hourly scale, XAU/USD is forming an inverted pennant chart pattern indicating a consolidation phase after a quick move lower. In this consolidation phase, those investors who could not enjoy the previous fall and those who prefer a continuation bet to a reversal participate. The 50 and 200 period EMAs at $1,910.23 and $1,935.43 respectively are scaling lower, indicating that a downtrend is intact. Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00 range, indicating a consolidation.

gold hourly chart

Technical levels