Gold, XAU/USD, Dow Jones, ECB, Rising Wedge – Asia Pacific Market Open

• Gold and Dow Jones sinking after a series of central banks in Europe
• Most notable was the ECB, which surprised on the aggressive side
• XAU/U.S. dollar breaks below Rising Wedge, indicating reversal risk

Asia-Pacific Market Briefing – Gold, Dow Jones sink as central banks in Europe rise

The gold price fell 1.7 percent on Thursday, marking its worst daytime performance in 3 months. The anti-fiat yellow metal was under pressure during a busy 24 hours of central bank rate decisions during the European trading session. These include the Swiss National Bank, the Bank of England and the European Central Bank. This also followed the Federal Reserve on Wednesday increased rates.

The SNB, BoE and ECB all raised interest rates to continue the fight against the highest inflation in decades, despite growing concerns about the state of global growth. The most notable of the three was the ECB, which surprised markets with a much more aggressive stance than expected. The central bank said interest rates should “rise significantly, at a steady pace” while revising upward inflation forecasts.

In just 24 hours, markets added more than 30 basis points to the ECB’s expected tightening in one year. This did not bode well for the anti-fiat yellow metal, which has been squeezed this year by central banks raising interest rates and driving up government bond yields. The more aggressive ECB also caused risk aversion, which caused equity markets to plummet. On Wall Street, the Dow Jones fell 2.35%. This boosted demand for the port-pegged US dollar, putting further pressure on gold.

Central banks are walking in Europe and lead to risk aversion

Chart created in TradingView

Friday’s Asia-Pacific Trading Session – All Eyes on Sentiment

Friday’s Asia-Pacific trading session carries no significant risk of economic events. That puts traders’ focus on overall risk appetite. The dismal performance of the stock markets during the Wall Street session leaves the Nikkei 225, ASX 200 and Hang Seng Index vulnerable. If that boosts demand for the US dollar as traders seek refuge, gold risks extending its decline.

Golden technical analysis

On the daily chart, gold prices broke below a bearish Rising Wedge chart pattern. That puts XAU/USD at risk, especially if prices find downside confirmation. This also follows negative RSI divergence, which showed that upside momentum was declining. Clearing immediate support, which is the 23.6% Fibonacci retracement level at 1775, exposes the 50-day Simple Moving Average. The latter could restore the upside focus in the near term.

XAU/USD daily chart

Chart created in TradingView

— Written by Daniel Dubrovsky, senior strategist for DailyFX.com

Follow him on Twitter to contact Daniel:@ddubrovskyFX