Although XAU/USD started the first trading day of 2013 lower, the pair has been climbing slowly during the Asian session. The pair traded as high as 1678.55 after the House of Representatives formally passed the fiscal cliff bill which will undo tax increases that took effect yesterday. The House passed the bill with 257-167 vote. The bill will extend income tax cuts for household income up to $450000. Investors have been hoping that the Democrats and Republicans would reach an agreement. However, there are some other serious problems which will cause new political wars. The dept ceiling and long term budget cuts will continue to remain as a big pressure on the American dollar. Short term charts remain bullish and the recent price action supports the bullish sentiment.
Today the key level to watch will be the 1680 resistance which is the top of the Ichimoku cloud on the 4-hour time frame. A break above this level could signal a bullish run to the 1705 level. If the XAU/USD pair climbs above the 1680 level and bullish momentum continues, the bears will be waiting at 1686, 1691.25 and 1705. However, if the bears take over and prices reverse, expect to see support at 1670.50, 1666 and 1658. Since we have a bullish Tenkan-sen (nine-period moving average, red line) / Kijun-sen (twenty six-day moving average, green line) cross on the 4-hour chart, I remain cautiously bullish.
