The XAU/USD (Gold vs. the American dollar) pair printed another bearish candle yesterday after strong U.S. manufacturing data helped push money back into the dollar and equities. Figures released from the Institute for Supply Management showed that the index of manufacturing activity climbed to 55.4 from 54.9 a month earlier and Markit reported that its manufacturing PMI picked up to 56.4 in May from 55.4 in April. The bears have been dominant since prices fell below the 1277 - 1268 support area last week.
From a technical point of view, the weekly and daily charts will remain bearish while the pair is trading below the Ichimoku clouds and the Tenkan-Sen line (nine-period moving average, red line) is below the Kijun-Sen line (twenty six-day moving average, green line). Although recent price actions suggest that the technical selling pressure is gaining momentum, the market is trying to hold just above the 1240 support level. Because of that I think this week's trading range will be between 1260 and 1227.
If the bulls gain some strength and the pair turns north, resistance can be found in the 1248/51 area. Beyond that, the bears will be waiting at 1256/60. However, if prices resume the bearish tone of the last week and drop below 1240, I think it is technically possible to see pair testing the 1235 level. Breaching this support would indicate that the bears will be aiming for 1227 next.
