XAU/USD appears to be consolidating as the uncertainty over the U.S. budget talks make traders reluctant to take sizable positions, long or short. In addition, many traders are on the sideline as trading slows down prior to the New Year. Recently the XAU/USD pair has been moving in the 1666 – 1652 area. Now there are less than five days remaining until automatic spending cuts and tax hikes kick in and it seems that market players are still optimistic. Today President Obama is returning to Washington. The President and Senate Majority Leader are expected to put together a scaled-down deal to avoid a fiscal crisis. Although House of Representatives Speaker John Boehner said the House would consider whatever legislation the Senate passed, how Senate Republicans will react remains uncertain. The daily chart is still bearish but we should note that prices bounced off of the bottom of a descending channel.
On the 4-hour time, we have a bullish Tenkan-sen line (nine-period moving average, red line) / Kijun-sen line (twenty six-day moving average, green line) cross but prices are still below the Ichimoku cloud. If we continue to stay above the 1650 support, the bulls will try to march towards the 1685 zone. On its way up, expect to resistance at 1666, 1673.50 and 1677. However if the bulls fail to break through the 1666 resistance, we will eventually pull back and test 1650. A break below this level would increase bearish pressure. If that is the case, look for 1647, 1643.50 and 1635.