For the third week in a row, the XAU/USD pair settled lower than opening. The pair rose Monday and Tuesday on expectations that Federal Reserve chief Ben Bernanke will defend the central bank's quantitative easing program. However, the rebound fueled by these expectations did not last long as the bears increased the pressure again at 1620. Gold prices have been steadily falling as investors flock to the relative safety of the U.S. dollar on signs that the health of the world's largest economy was improving. Recent data, from housing sector to labor market and consumer confidence, boosted optimism about the economic recovery. According to the Friday's reports, the Institute for Supply Management's manufacturing index climbed to 54.2 from 53.1 in January and the University of Michigan consumer sentiment index rose to 77.6 from 76.3. I think this will be an important week for the XAU/USD pair as we were stuck between 1587 and 1563.80 on Friday. Although bearish technical formation on the weekly and daily charts suggests there is still some room for the pair to sink, I will be watching these two levels before I take an action.
If the bears continue to push downward and 1563.80 gives way, I will be looking for 1555, 1547.92 and 1532. If prices turn bullish and successfully climb above the 1587 resistance level, I think we may retest 1597.77 and 1604. The bulls will need to break through the 1604 level in order to gain control. In other words, the pair has to close above the Ichimoku cloud and the Tenkan-Sen line (nine-period moving average, red line) has to cross above the Kijun-Sen line (twenty six-day moving average, green line) on the 4-hour time frame before I consider a long position.
