XAU/USD trades neutral ahead of US Retail Sales

• XAU/USD bull’s battle to regain the 100-day SMA at $1,955.
• The focus is on Tuesday’s US Retail Sales data.

At the start of the week, the XAU/USD traded in the $1,945 – $1,960 range as the USD fought back and traded resilient at the 99.90 area. However, the US Treasury yield continued declining, limiting the Gold’s downside potential.

Retail Sales are expected to have increased by 0.5% in June, while the sales excluding the Automobile sectors have expanded by 0.3%. Noting soft inflation figures, a potential US economic weakening could reduce the Fed’s need to tighten policy, potentially causing volatility in Treasury yields and gold prices.

As for now, market participants, as per the CME FedWatch Tool, have largely priced in 25 basis points (bps) hike in the next July 26 Fed meeting, but the odds of another hike in 2023 have fallen to 20% due to soft inflation figures. In that sense, these dovish bets on the Fed are responsible for the USD weakness, which allowed the XAU/USD to rally last week.

XAU/USD Levels to watch

The daily chart suggests that the technical outlook for the XAU/USD is neutral to bullish as the bulls show signs of exhaustion. The Relative Strength Index (RSI) stands flat above its midline, while the Moving Average Convergence Divergence (MACD) printed a lower green bar, suggesting the buyers are losing strength.

Support Levels: $1,945, $1,927 (20-day SMA), $1,915. 
Resistance Levels: $1,955 (100-day SMA), $1,965, $1,990.

XAU/USD Daily chart