Gold retreats from multi-month highs, trades near $1310 as USD gathers strength on ADP data

• ADP employment change comes in at 213K in January.
• US Dollar Index turns green on the day above 95.80.
• Coming up: FOMC monetary policy announcements. 

The XAU/USD pair extended its rally for the third straight day on Wednesday and reached its highest level in more than 8 months at $1316 before coming under a renewed selling pressure in the early NA session. Following the upbeat ADP employment report, the pair quickly dropped to $1310 area and was last seen trading at $1311,65, where it was virtually unchanged on a daily basis.

In its monthly publication, the ADP announced that the private sector employment increased by 213K from December to January to surpass the market expectation of 175K. Commenting on the data “The job market weathered the government shutdown well. Despite the severe disruptions, businesses continued to add aggressively to their payrolls. As long as businesses hire strongly the economic expansion will continue on,” Mark Zandi, chief economist of Moody’s Analytics, said. Boosted by the data, the US Dollar Index jumped to 95.89 and was last seen adding 0.02% on the day at 95.83.

Despite the initial positive reaction, investors seem to be refraining from making large bets ahead of the FOMC's monetary policy announcements later in the session. Previewing the Fed event, “Attention will be given to any changes to forward guidance, in particular the Fed's guidance over "some further gradual increases". This will also be Powell's first press conference at a non-SEP meeting, commencing at 19:30 GMT,” noted TDS analysts.

Meanwhile, the S&P Futures is adding 0.4% on the day to suggest a strong start to the day in Wall Street, which could force the precious metal to continue to weaken against the dollar.

Technical levels to consider

The initial resistance for the pair aligns at $1316 (daily high) ahead of $1322 (May 14, 2018, high) and $1332 (Apr. 25, 2018, high). On the upside, supports are located at $1300 (psychological level/former resistance), $1292 (20-DMA) and $1280 (Jan. 25 low). Meanwhile, the CCI indicator on the daily chart turned south above the 100 mark, suggesting that the bullish momentum is starting to lose strength.