Gold traded as high as 1245.24 during yesterday's session but pulled back to the 1225 level, which was the previous resistance, after a report released from the Commerce Department revealed that the U.S. trade deficit shrank more than forecasts. According to data, the trade deficit declined to $34.3 billion in November from a revised $39.3 billion in October. The American dollar also drew strength from Federal Reserve Bank of San Francisco President John Williams' comments on quantitative easing. Williams said “Assuming the economic recovery plays out as we expect, we will likely continue to reduce the pace of those purchases, and eventually eliminate them, over this year”. He also noted that inflation finally bottomed out but getting back to the Fed's 2% target would take time.
Minutes from the Federal Open Market Committee's December 17-18 meeting, which will be released today, could give us some clues about how quickly the Fed will scale down the stimulus.
From a technical perspective, today's key levels to watch will be the 1237 and 1225 levels. The bears will need to break below the 1225 support level -where the Kijun-sen line (twenty six-day moving average, green line) sits on the daily time frame- in order to increase their strength. If that happens, I think we will be heading back to the 1215.32 - 1213 area.
Dropping below the 1213 support level may give the bears the extra power they need to revisit the 1205 level. If the market can push back up and break through the 1237 level, it is likely that the pair will test the 1242 resistance (Fibonacci 23.6). A close above this level could make me think that the bulls are strong enough to tackle 1252.
