XAU/USD traded lower yesterday, after hitting resistance near the crossroads of the 1968 level and the downside resistance line drawn from the high of August 10th. That said, the slide was stopped today by the 1937 zone. Overall, the precious metal appears to be trading within a descending triangle, with the upper side being the aforementioned downside line and the lower bound being the 1910 hurdle. Although, in theory, most descending triangles are considered bearish, we’ve seen many of them followed by a bullish exit. Thus, we prefer to stay sidelined for now and to wait for the price to exit the pattern before we start examining the metal’s forthcoming direction.
A decisive break above 1968 would signal the upside exit out of the triangle and could also mean that the prevailing uptrend is back in force. The bulls may get encouraged to push the action towards the 1991 zone, marked by the high of September 1st, the break of which could pave the way towards the peak of August 18th, at around 2015. Another break, above 2015, could carry larger bullish implications, perhaps setting the stage for extensions towards the 2050 area, defined as a resistance by the high of August 10th.
Shifting attention to our short-term oscillators, we see that the RSI lies near its 50 line, pointing east, while the MACD runs near both its zero and trigger lines, pointing sideways as well. Both indicators suggest a lack of directional momentum and enhance further our choice to stay neutral until we see gold exiting the triangle.
On the downside, a break below 1910 may be needed to turn the short-term outlook negative. Such a move would confirm a forthcoming lower low and may initially aim for the 1863 obstacle, which is marked as a support by the low of August 12th. If the bears find the strength to overcome that zone as well, we may then see the decline extending towards the 1815 area, which provided decent resistance between July 8th and 17th.
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