Gold Price Forecast: XAU/USD extends bounce off $1,851 support confluence on softer USD

• Gold prints three-day uptrend despite being sluggish of late.
• US Dollar fails to track yields as pre-ECB optimism weighs on the greenback demand.
• Fears of inflation, growth keeps the metal buyers hopeful.
• ECB’s July rate hike signals may favor XAUUSD bulls but economic forecasts could probe the run-up.

Gold Price (XAU/USD) picks up bids to refresh intraday high around $1,855 as the US dollar bulls take a breather ahead of the European Central Bank’s (ECB) monetary policy decision on Thursday. In doing so, the precious metal rises for the third consecutive day even as the bulls lack momentum strength of late.

US Dollar Index (DXY) drops 0.08% near 102.47, consolidating the weekly gains, as market players brace for hawkish ECB. “ECB tightening expectations have picked up ahead of tomorrow’s decision. WIRP suggests liftoff July 21 remains fully priced in,” said Brown Brothers Harriman (BBH) in their latest report.

It’s worth noting that the US dollar’s weakness part ways from the firmer Treasury yields as the 10-year benchmark rises 1.5 basis points (bps) to 3.045%. The bond bears keep reins around a one-month high amid the prevailing inflation and growth fears, as well as hawkish hopes from the major central banks.

The firmer yields and pre-ECB anxiety weigh on the market sentiment and drown the S&P 500 Futures for the second consecutive day.

Moving on, today’s monetary policy decision from the European Central Bank (ECB) will be important for the traders, due to its direct impact on the US dollar and the market sentiment. Following that, Friday’s inflation data from China and the US will be crucial to watch for fresh impulse. Should the risk-aversion continue, the markets may witness further US dollar strength, which in turn could weigh on the gold prices.

Technical analysis

Gold rebounds from a convergence of the 200-HMA and a two-day-old bullish channel’s support. The upside momentum also gains support from the firmer RSI (14) and receding bearish bias of the MACD.

That said, the latest rebound eyes the stated channel’s resistance line near $1,862 before challenging the monthly peak of $1,874.

On the contrary, a downside break of the $1,851 support confluence could recall gold bears targeting the previous weekly low of around $1,828.

Gold: Hourly chart

Trend: Further recovery expected