• US dollar strengthens on rising yields
  • XAUUSD sell-off gathers steam
  • USDCAD turns bullish above 1.2800

The US dollar regained its upward momentum against the majors as investors reacted to hawkish minutes report from the Federal Reserve. The dollar index, which measures the greenback’s strength, hovered near the 96.30 mark after plunging to 95.86.

The dollar remains on the front foot, supported by rising US treasury yields. The 10-year yield has already powered to highs of 1.73% and is closing in on the 2% threshold. Treasury yields are seen rising amid growing bets that the hawkish stance by the FED sets the stage for a potential rate hike in March.

Gold technical analysis

Amid the dollar strength across the board, gold has been the biggest casualty posting its second day of losses on Wednesday. The sell-off has seen the precious metal plunge to near the $1800 level (see the chart below) after powering to one-month highs of $1832 in the recent past.

Chart showing XAUUSD pulls back

After the recent pullback, XAUUSD faces strong support near the $1798 level. A break below the support level could result in renewed sell-off to the $1780 mark, the next substantial support level. Bulls need to defend the $1800 psychological level to avert increased losses on the precious metal in the short term.

XAUUSD drivers

In the short term, XAUUSD could pay the price of firmer yields. US treasury yields edging higher have continued to fuel bids on yield-bearing securities, with Gold paying the highest price. A hawkish stance from the FED hinting of accelerated tightening of monetary policy will also continue to affirm dollar strength, something that could see XAUUSD edging lower.

A big US ADP Employment change for December of 807K versus 400K expected and a hawkish statement from the FED minutes affirm conditions for a rate hike. Chatter around sooner than expected rate hikes should continue to fuel a rally on yields, something that should fuel dollar strength and see XAUUSD edge lower.

In addition to Treasury yields and rate hikes, gold sentiments have also taken a hit amid the ongoing talk about the impact of the Omicron variant. Findings of another virus variant should continue to weigh heavily on risk sentiment in the market, something that could see traders scampering for safety on the dollar, consequently sending the XAUUSD lower.

The focus is on the release of US Trade Balance and ISM Service data for December. Weekly jobless claims for December will be crucial on dollar sentiments, consequently influencing XAUUSD price action. However, all attention is on Friday’s Non-Farm payroll report, which will paint a key picture of the US labor market and influence charter on rate hikes.

USDCAD rally resumes

Meanwhile, the Canadian dollar remains under pressure against the dollar as oil prices struggle to power through the $80 a barrel level. Consequently, the USDCAD pair has started edging higher, powering through the 1.2800 psychological levels, as seen in the illustration below.

Image showing USDCAD edging higher

A bounce back from three-week lows of 1.2625 levels has gathered steam in recent days on the dollar holding steady amid rising US treasury yields and charter of further tightening in the US. The pair finding support above the 1.2766 has opened the door for a rally to the 1.2833 level, the next substantial resistance level.

The rally toward the 1.2800 level has been fuelled by the hawkish stance of the FED minutes that continues to send yields higher conversely dollar strength. Downbeat prices of Canada’s main export WTI crude oil have also weighed heavily on the CAD, consequently, the bullish momentum on the pair.

In the medium term, former yields and softer oil prices should continue to offer support on the USDCAD uptrend towards three-week highs above the 1.2800 level. The Non-Farm payroll report on Friday will be another factor likely to influence the pair’s price action.