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• Gold price remains sidelined after refreshing the multi-year low.
• Fears emanating from central banks, Ukraine weigh on XAU/USD.
• Italy’s elections, downbeat EU data versus firmer US numbers also favor gold sellers.
• Risk catalysts, Fed Chair Powell’s speech will be eyed for corrective bounce.

Gold price (XAU/USD) licks its wounds at a two-year low, around $1,645 during Monday’s Asian session, as bears take a breather after the biggest daily fall in a week ahead of the key catalysts. Also testing the metal prices could be the mixed headlines surrounding Europe and Russia. Even so, the bears remain hopeful amid the broad rush to risk safety.

A corrective pullback in the sentiment could be observed in Germany’s ability to get a gas deal from Abu Dhabi, as well as in the absence of any immediate reaction from Russia to the Group of Seven (G7) chatters to muster courage against Moscow. A holiday in New Zealand and a light calendar in Asia also recently allowed the XAU/USD bears to take a breather.

During the last week, strong US PMIs, the downbeat activity numbers from the bloc and Russia’s fierce warning to the West, as well as the Group of Seven (G7) leaders’ readiness to counter Moscow with sanctions weighed on the gold price. Additionally, hawkish central bankers and fears of recession also weighed on the market sentiment and drowned the XAU/USD.

That said, the first readings of September month S&P Global PMIs suggested that the European economy slipped further into contraction, hurt by soaring energy prices. German Services PMI dropped to the two-year low while its counterpart for Europe tested the lowest levels in 19 months. Further, Manufacturing PMIs slumped to the lowest in 20 months. US S&P Global PMIs, on the other hand, were encouraging as the Manufacturing gauge rose to 51.8 from 51.5, while its services counterpart recovered from 44.6 to 49.3 for September.

Elsewhere, Fed Chairman Jerome Powell said on Friday, “We are committed to using our tools.” Following him, Fed Vice Chair Lael Brainard mentioned that inflation is very high and is hitting low-income families ‘hard’. During the weekend, Atlanta Federal Reserve President Raphael Bostic said that he still believes the central bank can tame inflation without substantial job losses given the economy's continued momentum, reported Reuters while quoting the Fed policymaker’s interview on CBS' "Face the Nation".

Recently, Ukraine President Zelenskiy was last heard saying that maybe ''Putin's nuclear threats were a bluff, but now, it could be a reality'' as per a CBS interview. Meanwhile, the United States warned of "catastrophic consequences" if Moscow were to use nuclear weapons in Ukraine after Russia's Foreign Minister said regions holding widely-criticized referendums would get full protection if annexed by Moscow.

Against this backdrop, Wall Street closed in the red and US Treasury yields climbed while the US Dollar Index (DXY) also refreshed the multi-year top. That said, S&P 500 Futures print mild losses at the latest.

Looking forward, Italy’s election results and a speech from European Central Bank (ECB) President Christine Lagarde will be important to watch for intraday moves. However, major attention will be given to the Ukraine-Russia tussles, speeches from Fed Chair Powell and US Durable Goods Orders for clear directions during the week.

Technical analysis

A three-week-old descending support line, currently around $1,635, restricts immediate gold price downside near the multi-month low. The corrective bounce, or at least a pause in further downside, also takes clues from the oversold RSI (14).

However, the 10-DMA and a downward sloping resistance line from September 13, respectively around $1,665 and $1,677, could restrict the immediate recovery of the XAU/USD prices.

Following that, the upper line of the five-month-old bearish channel, around $1,735 by the press time, will be crucial to watch for the metal buyers.

Alternatively, a downside break of $1,635 immediate support could quickly drag gold towards the early 2020 peak surrounding $1,610 before directing the bears to the aforementioned channel’s support line, close to $1,580 at the latest.

Gold: Daily chart

Trend: Corrective bounce expected

Capital controls and currency intervention are among tools emerging Asian policymakers can use if rapid U.S. interest rate hikes and a surging dollar risk triggering a debt crisis, Asian Development Bank (ADB) President Masatsugu Asakawa said on Friday, per Reuters.

Key quotes

Also read: Ukraine headlines are mixed for the open

• EUR/USD seesaws around two-decade low, picks up bids of late.
• Italy’s election polls suggest right-wing, led by Meloni is up for victory.
• Russia’s nuclear threat, G7 leaders’ readiness for more sanctions on Moscow and hawkish Powell favored bears of late.
• Speech from ECB’s Lagarde, Italian election results will offer immediate directions, corrective bounce can’t be denied.

EUR/USD bears take a breather at the lowest levels since September 2002, around 0.9700 by the press time, amid early Monday morning in Asia. The major currency pair slumped the most in eight days on Friday while refreshing the multi-year low with the 0.9667 number. The latest corrective bounce, however, appears tepid ahead of the key catalysts.

Be it strong US PMIs or the downbeat activity numbers from the bloc, not forget Russia’s fierce warning to the West and the Group of Seven (G7) leaders’ readiness to counter Moscow with sanctions, everything led to the EUR/USD pair’s weakness the previous week. The quote, however, seems to lick its wounds at the multi-year low as exit polls for Italy’s elections suggest an end to the political uncertainty, even if there prevails a little comfort for the right-wing leadership in Italy among some of the European nations, including Germany.

That said, the first readings of September month S&P Global PMIs suggested that the European economy slipped further into contraction, hurt by soaring energy prices. German Services PMI dropped to the two-year low while its counterpart for Europe tested the lowest levels in 19 months. Further, Manufacturing PMIs slumped to the lowest in 20 months.

Elsewhere, Fed Chairman Jerome Powell said on Friday, “We are committed to using our tools.” Following him, Fed Vice Chair Lael Brainard mentioned that inflation is very high and is hitting low-income families ‘hard’. During the weekend, Atlanta Federal Reserve President Raphael Bostic said that he still believes the central bank can tame inflation without substantial job losses given the economy's continued momentum, reported Reuters while quoting the Fed policymaker’s interview on CBS' "Face the Nation".

On a different page, the latest polls for the Italian elections mention that the right-wing alliance led by Giorgia Meloni's Brothers of Italy party looked set for a clear majority in the next parliament, reported Reuters. Ahead of the elections, The Guardian stated that Germany’s governing Social Democratic party warned last week that her win would be bad for European cooperation. Lars Klingbeil, the chairman of Chancellor Olaf Scholz’s SPD, said Meloni had aligned herself with “anti-democratic” figures such as Hungary’s prime minister, Viktor Orbán.

It should be noted that Russia’s warning of using nuclear weapons if needed to battle with the West and the G7 efforts to muster courage against Moscow also weighed on the risk appetite and drowned the EUR/USD prices. “The CBOE Volatility Index, known as Wall Street's fear gauge, on Friday shot above 30, its highest point since late June but below the 37 average level that has marked crescendos of selling in past market declines since 1990,” per Reuters.

Amid these plays, Wall Street closed in the red and US Treasury yields climbed while the US Dollar Index (DXY) also refreshed the multi-year top.

Moving on, Italy’s election results and a speech from European Central Bank (ECB) President Christine Lagarde will be important to watch for intraday moves. However, major attention will be given to the Ukraine-Russia tussles, speeches from Fed Chair Powell and US Durable Goods Orders for clear directions during the week.

Technical analysis

A two-month-old support line near 0.9650 restricts immediate downside of the EUR/USD pair. The recovery moves, however, need validation from a descending support-turned-resistance line, around 0.9830 by the press time, to convince traders.

• AUD/USD is delining towards 0.6500 as arket ood sours on Russia’s nulear attak warning.
• Fed’s hawkish guidance will hae a longer ipat on risk-sensitie assets.
• A deline in US Durable Goods Foreast projections ould ipat the DY.

The AUD/USD pair has opened around previous week’s low at 0.6511 and is expected to remain on the tenterhooks as risk-off prospects have soared after the warning from Russian leader ladiir Putin. The Russian Federation has warned for a nuclear attack in retaliation against the western sanctions. After Russia’s invasion of Ukraine G-7 countries are levying sanctions on Russia in terms of oil pries and SWIFT remittances fro other countries.

The asset is hovering around previous week’s low and is epeted to slip down to near the psyhologial support of 0.6500. Apart from the risk-off market ood the ipat of the hawkish guidance fro the Federal Resere (Fed) is epeted to reain for a longer period.

The Fed sees that the interest rates will peak around 4.6% whih sees optimal to tackle inflationary pressures. No doubt the announcement has forced the institutional investors to trim their growth projections forecasts for employment numbers and housing sales.

Going forward investors will fous on the US Durable Goods Orders data which is expected to decline by 1.1% against a decline of 0.1% reported earlier. Investors should be aware of the fat that inflationary pressures remained lower in August as US headline onsuer Prie Index (PI) dropped to 8.3% from the prior release of 8.5%.

Therefore a decline in the price pressures is expected to impact on Retail Sales too. Also the gasoline demand has remained etereely poor in the past three weeks which will have its impact on the Retail Sales data.

Technical levels

A right-wing alliance led by Giorgia Meloni's Brothers of Italy party looked set for a clear majority in the next parliament, exit polls said on Sunday after voting ended in an Italian national election, reported Reuters.

Key quotes

EUR/USD remains pressured

The polls fail to impress EUR/USD bulls as it remains pressured at 20-year low around 0.9675 by the press time.

Also read: EUR/USD Weekly Forecast: No rest for the wicked

Atlanta Federal Reserve President Raphael Bostic said Sunday he still believes the central bank can tame inflation without substantial job losses given the economy's continued momentum, reported Reuters while quoting the Fed policymaker’s interview on CBS' "Face the Nation".

Key quotes

Market reaction

After a volatile Friday, mostly in favor of the US dollar, the market’s reaction to the latest Fedspeak appears mostly silent.

British finance minister Kwasi Kwarteng said on Sunday that he was focused on boosting longer-term growth, not on short-term market moves, when challenged over the sharp fall in sterling and bond prices following his first fiscal statement, reported Reuters.

On Friday, Kwarteng scrapped the country's top rate of income tax and cancelled a planned rise in corporate taxes - all on top of a hugely expensive plan to subsidise energy bills for households and businesses.

“As chancellor of the exchequer, I don't comment on market movements. What I am focused on is growing the economy and making sure that Britain is an attractive place to invest,” he told the BBC, defending the fiscal expansion despite the risks it fuels inflation further, added Reuters.

Key quotes

Market reaction

The news seems to have a little acceptance among the GBP/USD buyers as the quote remains pressured at the lowest levels since 1985, after refreshing the multi-year bottom on Friday.

Also read: GBP/USD Weekly Forecast: Oversold but is selling overdone

German utility RWE has signed a deal with Abu Dhabi National Oil Company (ADNOC) to deliver liquefied natural gas to Europe's largest economy by the end of December, RWE announced on Sunday per Reuters.

“The deal, which includes a memorandum of understanding for multi-year supplies of LNG, came on the second day of a two-day trip to the Gulf region by Scholz,” adds the news.

Additionally, German Chancellor Scholz In Doha stated that he talked with the Emir about LNG-deliveries. “We want to achieve further progress.”

Key quotes

Market implications

The news may offer a sigh of relief to traders after Friday’s slump to the fresh multi-year low. The market reaction, however, is yet to be witnessed during the initial hours of Asian session on Monday.

Also read: EUR/USD Weekly Forecast: No rest for the wicked

Despite grim PMIs on the continent and risk-off around the globe on inflation worries, the euro and global stocks have been pressured of late with the resurgence of geopolitical worries stemming from the Ukraine crisis.

The news that Russian President Vladimir Putin moved to add 300,000 new troops to shore up the country's flagging war on Ukraine and threatened to use nuclear weapons sent markets into a tailspin last week and there is little let-up in the latest headlines surrounding the debacle. However, the headlines are mixed and sactions remain the West's weapon despite the threat of nucear conflict.

Ukraine Pres Zelenskiy was last heard saying that maybe ''Putin's nuclear threats were a bluff, but now, it could be a reality'' as per a CBS interview.

Meanwhile, the United States warned of "catastrophic consequences" if Moscow were to use nuclear weapons in Ukraine after Russia's Foreign Minister said regions holding widely-criticized referendums would get full protection if annexed by Moscow.

Indeed, the Financial Times wrote, ''according to few western officials, any potential Russia's nuclear strike against Ukraine would be unlikely to spark a retaliation in kind but would instead trigger conventional military responses from western states to punish Russia.'' 

Nat Sec Adviser Sullivan said that ''US privately and at a very high level informed Russia that any use of nuclear weapons would lead to catastrophic consequences for Russia because the US and its allies will give a decisive response.''

Reuters reports that ''votes in four eastern Ukrainian regions, aimed at annexing territory Russia has taken by force mostly since its invasion in February, were staged for a third day on Sunday. The Russian parliament could move to formalize the annexation within days.''

Prime Minister Liz Truss said Britain and its allies should not be listening to Russian President Vladimir Putin's "sabre-rattling" on Ukraine after he ordered a partial mobilisation of troops and raised the possibility of nuclear conflict, as Reuters reports:

"We should not be listening to his sabre-rattling and his bogus threats. Instead, what we need to do is continue to put sanctions on Russia and continue to support the Ukrainians," Truss told CNN in an interview broadcast on Sunday

As for markets, the US dollar, as measured by the ICE dollar index was reaching a high of 113.228 on Friday as bond yields touched the highest since 2010. The yield on the US 10-year note hit a high of 3.829% while the euro consequently fell for a fourth straight day, down 1.5% to $0.9686 for the close, 10 pips above the low of the day scored after data showed the downturn in the German economy worsened in September. The pound made another 37-year low of 1.0834.