The XAU/USD pair (gold vs. the greenback) closed the week lower than opening as failure to break above the 1695-1705 zone resulted in a sell-off. The pair has been trading in a massive flat channel for 70 weeks and the settlement price is the just above the center or middle line of this giant consolidation area. Because of that I think 1652-1642 zone will be very important for the future direction of this pair. Since prices have been running in a descending channel on the daily time frame, I believe this support area will be tested this week. Due to the fact that prices are below the Ichimoku clouds, (the daily and 4-hour) charts suggest that the bears are dominating the XAU/USD pair. On the weekly time frame, the bottom of the cloud converges with the January 4 low of 1625.64. If the bears continue to push downward and prices drop below 1652, I will be looking for 1642, 1635 and 1625.
Once below 1625, there is little to slow this pair down until we reach the next key support at the 1600 level which intersects with the bottom of the descending channel. If the fall does stop at 1652 and price turns bullish, expect to see resistance at 1663 and 1666 before heading back up to 1674. 1674 will be the key level for the bulls to pass in order to challenge the bears at the 1695-1705 battle field. It appears to me that any rally in gold is simply an invitation to sell at higher prices. Therefore, signs of weakness are what I am looking for.
