The XAU/USD pair tried to break through the 1278 resistance level yesterday but ran out of steam as investors used this opportunity to take profit ahead of the Federal Open Market Committee meeting. The mild disappointments in the Commerce Department's new home sales data failed to have a lasting impact on the American dollar and I think that is something to pay attention. After being rejected by the 1278 level which happens to be the 38.2 Fibonacci retracement levels based on the bearish run from 1433.70 to 1182.35, now the market pulled back to the 1255 level.
This level had been a significant resistance since late November so if the bulls want to maintain their control they will need to defend their new support camp. The Tenkan-Sen line (nine-period moving average, red line) currently sits at the same level. However, prices are moving inside the Ichimoku cloud (the daily chart) and this suggests that we are going to be range bound in the near term. While this could create some trading opportunities for day-traders, long-term trades should wait until we leave the cloud completely. If the 1255 support level remains intact, it is likely that the pair will climb towards the 1268 resistance level.
The bulls have to break and hold above that level in order to gain enough strength to challenge the bears at 1278 once again. If the bears take the reins and pull prices below the 1255 level, I think the next stop will be the 1245 level. Below 1245, there will be additional support between 1241 and 1235. A daily close below 1235 could take us back to 1225.
