The XAU/USD pair had a bearish candle as the American dollar strengthened across the board. The European Central Bank kept rates on hold at 0.75% yesterday but investors took a cautious stance as comments by President Mario Draghi raised expectations of further interest rate cuts. Investors turned to the relative safety of the greenback after he said he expects economic activity in the eurozone to recover gradually in 2013. Draghi also said that there are still negative risks and the exchange rate of the common currency is important for economic growth. The American dollar found extra support after the U.S. President Barack Obama said “I am prepared, eager and anxious to do a big deal, a big package that ends this governance by crisis”. From a technical point of view I still consider the 1685 level as a critical resistance for the bulls. This area has been a cap on gold prices recently and because of that the sellers come in and step up the pressure every time the bulls have a chance to break out. The pair has been range bound for almost ten days as the battle between the bulls and bears intensify in the 1660-1685 zone. Since both the daily chart and 4-hour chart are giving mixed signals I will be waiting for a clear signal.
The bears will need to break below the 1660 support level in order to increase their strength. If that happens, I believe we will be heading back to the January 28 low of 1652. A close below that would open the doors to 1640.50. Today the first key resistance zone will be 1674-1678.50. If prices climb and hold above this area, the bulls may have another chance testing the 1685 barrier. Beyond 1685, the most important challenge will be waiting the bulls at 1695.
