XAU/USD traded higher yesterday after it hit support slightly above the 1278 barrier. However, the advance was stopped near the 1292 zone during the early European morning today, and then, the metal retreated somewhat. The price structure remains of higher peaks and higher troughs above the uptrend line drawn from the low of the 14th of November, as well as above all three of our moving averages, and thus, we would consider the near-term outlook to be positive.
We would expect the bulls to take the reins again soon and perhaps aim for another test near 1292. A decisive break above that barrier would confirm a forthcoming higher high and may see scope for extensions towards the 1308 zone, which acted as a strong resistance from the 24th of May until the 14th of June. Nevertheless, before the bulls decide to jump back into the action, we see the case for the current retreat to continue for a while more, perhaps for the yellow metal to test once again the 1278 area.
Our view for some further setback is derived by our short-term momentum studies. The RSI turned down after it hit resistance slightly below its 70 line, while the MACD, although positive, lies below its trigger line and points south. What’s more, there is negative divergence between both these indicators and the price action.
In order to start examining the case for a deeper slide, we would like to see a clear dip below 1276. Such a move may initially pave the way for the 1266 zone, the break of which could target the crossroads of the 1259 level and the aforementioned uptrend line. That said, as long as that line remains intact, we would still treat such a decline as a correction of the prevailing near-term uptrend. We would like to see a clear close below that line before we start examining the case of a short-term trend reversal to the downside.
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