Gold Weekly Forecast: XAU/USD poised to extend slide after breaking key supports

● Gold lost more than 5% on a weekly basis for the first time in a year.

● Unabated USD strength on FOMCs hawkish shift dominated financial markets.

● The next target on the downside is located at $1,756.

After closing the previous week in the negative territory, gold remained under modest bearish pressure during the first half of the week and registered losses on Monday and Tuesday. With the USD gathering strength during the American trading hours on Wednesday, XAU/USD extended its slide and lost nearly 5% in a two-day span to touch its lowest level in six weeks at $1,767 on Thursday. Although the pair staged a correction ahead of the weekend, it struggled to preserve its recovery momentum and closed a little above $1,770 with a weekly loss of 5.5%.

Next Week

On Tuesday, FOMC Chairman, Jerome Powell, will be testifying before the House Select Committee on the Coronavirus Crisis at 1800 GMT in a hearing entitled “Lessons Learned: The Federal Reserve‘s Response To The Coronavirus Pandemic.” The chairman is unlikely to change his tone only a few days after the FOMC meeting and his remarks are unlikely to have a significant impact on the USD’s valuation.

On Wednesday, the IHS Markit will publish the preliminary Manufacturing and Services PMI reports for June. The headline figures are expected to confirm the ongoing expansion at a robust pace both in the service and the manufacturing sectors. Investors, however, will keep a close eye on the underlying details with regards to input price pressures. In case these reports reaffirm the view that inflation will continue to rise, the USD could gather additional strength and weigh on XAU/USD.

On Thursday, the Bank of England (BoE) will announce its policy decision. There will not be a press conference and the BoE could refrain from changing its forward guidance. Nevertheless, a hawkish outlook could trigger a sharp increase in the GBP/USD pair and help XAU/USD turn north. Meanwhile, the US Bureau of Economic (BEA) will release the final version of the annualized first-quarter GDP growth on Monday, which is expected to match the previous estimate of 6.4%.

Finally, the BEA will publish the Core Personal Consumption Expenditures (PCE) Price Index, the Feds preferred gauge of inflation, on Friday. The Core PCE Price Index is forecast to edge lower to 2.9% in May from 3.1% in April. A stronger-than-expected PCE inflation is likely to allow the greenback to continue to outperform its rivals and vice versa.

Gold technical outlook

On the daily chart, the Relative Strength Index (RSI) indicator dropped below 30 for the first time since early March, suggesting that the pair could stage a technical correction before the next leg down. However, XAU/USD broke below the 200-day and the 100-day SMAs in a two-day span, reflecting the dominance of the sellers in the current environment.

Unless gold makes daily close above $1,800 (100-day SMA, psychological level, Fibonacci 50% retracement of April-June uptrend), the bearish pressure is likely to remain intact in the near term. Above that level, the next critical resistance is located at $1,825 (Fibonacci 38.2% retracement) ahead of $1,835 (200-day SMA).

On the downside, strong support seems to have formed at $1,770 (Fibonacci 61.8% retracement) before $1,756 (April 29 low, static level) and $1,745 (static level).