Gold weakened against the American dollar for a third session on Wednesday after the Federal Open Market Committee announced that it will trim monthly asset purchases by another $10 billion to $55 billion and updated its guidance regarding the likely future path of the short-term interest rates.
Fed's statement shows policy makers no longer consider the 6.5% unemployment rate as a threshold for the first rate hike. Ultimately, these decisions are supportive for the American dollar and the bears took advantage of that. Diminishing demand for protection against geopolitical turmoil and a stronger dollar caused gold prices to decline more than 3.7% since Monday.
As a result, the XAU/USD pair is now trading below the Ichimoku clouds and we have bearish Tenkan-sen (nine-period moving average, red line) - Kijun-sen line (twenty six-day moving average, green line) cross on the 4-hour time frame. In my previous analysis, I had warned that breaking below the 1346 support might trigger a sell-off targeting the 1333/0 area which was the bottom of the previous consolidation.
Although bearish technical formation on the weekly and 4-hour chart suggests there is still more room for the pair to sink, we might encounter some support around the current levels. If prices climb and hold above 1333, we could possibly see the bulls make a run for the 1344/6 area where the Tenkan-sen line resides on the 4-hour time frame. Buyers will need to break through this first critical barrier in order to challenge the bears at 1355. If the bears continue to dominate the pair and keep prices below 1330, then the market will probably test the 1320 support level. A successful close below 1320 means 1307 will be the next target.
