The XAU/USD pair closed the day higher after three consecutive days of losses as concerns over the U.S. budget and debt ceiling boosted the appeal of the precious metal. It seems that the budget battles coupled with postponement of the tapering decision by the Federal Open Market Committee will maintain a temporary pressure on the American dollar in the short term.
Yesterday the XAU/USD pair touched the 1338.35 level where the Ichimoku clouds (on the 4-hour time frame) and the Fibonacci 38.2 converge. Technically speaking, the thinner the Ichimoku cloud, the more likely it is that prices will manage to break through it. In our case, gold prices will need to break either above 13455 or below 1291 before it can resume trending. If the bulls manage to shatter this first barrier, it is technically possible to see a bullish continuation targeting the 1360 and 1374/80 levels. Beyond 1380, there will be significant resistance around the 1400 - 1416 zone.
To the downside, there is an interim support at 1326. If the bulls fail to hold prices above the 1333 support level, we might test it today. In order to gain more strength, the bears will have to drag the pair below the 1318 support level. If that happens, I would expect gold prices to drop all the way back to the 1310/05 area.
A daily close below 1291 would indicate that the correction is over and the bears' next target will be 1275. Today sees release of important economic reports such as weekly unemployment claims, pending home sales and GDP, so expect some volatility.
