The XAU/USD pair closed lower than opening as investors took a cautious stance ahead of the G-20 talks starting tomorrow. The pair maintains its bearish outlook while trading within the descending channel originating in October 2012. Yesterday's settlement price was the lowest since August 22. The pair had broken below a critical support at 1660 and gained enough momentum to breach the 1652 floor a few days ago. Yesterday the pair tried to climb above the 1652 level, which also happens to be the 50% retracement based on the bullish run from 1526.82 to 1795.75, but failed after encountering heavy resistance and pulled back to the 1640.50 support level. Recent data out of the U.S. fueled optimism the first quarter will be better than previously forecasted. However, concerns about the U.S. budget negotiations may affect investors' sentiment unless lawmakers act immediately. While President Barack Obama is trying push for a higher federal minimum wage, Republican speaker of the U.S. House of Representatives, John Boehner dismissed the president’s proposal saying "When you raise the price of employment, guess what happens? You get less of it. Why do we want to make it harder for small employers to hire people?”. 1640.50 will be a key level to watch today as price found support there two days in a row.
Although I expect to see some consolidation in the near-term, if the bears successfully break below this level, I think we will test 1635 and 1625 eventually. Resistance to the upside can be found at 1645.60, 1652/6 and 1660. I will remain bearish until the bulls push the pair above the Ichimoku cloud and the Tenkan-sen line (nine-period moving average, red line) crosses above the Kijun-sen line (twenty six-day moving average, green line).
