Hammer at Previous Highs and Fib Level
Gold prices initially traded lower early in yesterday’s Asian trading session. XAUUSD dropped to an intraday low of $1,535.39 after opening at $1547.82. However, the precious metal found bids at this price level which previously served as resistance. This area also coincides with the 50% Fib level (drawing from the low of December 6 to the high of January 8). In fact, it steadily traded higher to close the day at $1,545.84, forming a hammer on the daily time frame. If you sign up to our forex trading course, you will learn that this candlestick is often seen as a bullish confirmation. It could mean that XAUUSD may soon rally to its 6-year highs at $1,611.04.
Gold price chart, daily
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US-China Deal Priced In?
It would seem that risk appetite surrounding the US-China Phase One Deal weighed down gold prices at first. The two countries are due to sign their agreement today in Washington. This is not exactly a surprise to market participants and yesterday’s price action on XAUUSD reflects that the event has already been priced-in.
Of course, it may have also helped that US data yesterday fell short of being impressive. The headline CPI figure for December printed as expected at 0.2%. However, excluding the price of volatile items, the core inflation figure came in less than forecast at 0.1%.
Gold Price Outlook
Now, before gold prices can make a run for the $1,600.00 handle, buyers will need to push prices beyond resistance around $1,555.00. There is a confluence of resistance at this price from the top of the falling channel and the 100 SMA and 200 SMA. A strong bullish close above this price would mean that the next near-term resistance will be at $1,562.08 where XAUUSD hit highs on January 10. After that, it would be the $1,600.00 handle.
On the other hand, if buyers are not able to sustain their momentum, a bearish engulfing candle may mean that XAUUSD has room to move lower. Near-term support is at yesterday’s lows at $1,535.82.