It appears that the XAU/USD pair halted its decline at the 1603 area after five consecutive days of losses. Gold prices have been falling since October on optimistic U.S. data. Rising car and house sales show the economy is improving and there are further signs that the labor market is stabilizing. In addition, fading concerns about inflation and a brighter global economic outlook have been hurting the shiny metal's safety appeal. The XAU/USD pair has declined approximately 4.5% since January 1 as investors' appetite for more conventional assets, such as U.S. and Japan equities, improved drastically. I still think that the XAU/USD pair will be trapped in a range between 1626 and 1588 this week as I expect prices to respect the descending channel originating in October. From a technical point of view, I think the bears will continue to dominate this pair in the long term. Prices are back below the Ichimoku clouds on the weekly time frame for the first time since August 2012 and the Tenkan-sen line (nine-period moving average, red line) is below the Kijun-sen line (twenty six-day moving average, green line) as well. Although the technical outlook is extremely bearish, bouncing back to 1626 level before another sell-off wouldn't be a surprise.
If the bulls manage to hold the pair above the 1603 line, we may see another bullish attempt to pass 1615. Beyond that, there will be more resistance at 1618.83 and 1625.64. However, if the bears increase selling pressure and prices drop below 1603, expect to see support at 1597.77. A break below 1597.77 would suggest that we are heading towards 1588. Today the market participants will be focusing on producer price index figures, building permits and the release of minutes from the Federal Reserve’s Open Market Committee January 29-30 meeting.
