XAU/USD (gold price in terms of USD) clung to the solid 5-DMA support above $ 1122 on Tuesday, as expected, and closed the day slightly in the red at 1127.30. The prices formed a spinning top candle sticks on the daily charts yesterday, having failed to extend beyond 200-DMA resistance then placed at 1129.80. The yellow metal continued to consolidate the upside after the recent strength and awaited fresh momentum from the US jobs data due later this week. While the persistent risk-off moods on the back of renewed sell-off in the oil prices, capped the downside in the bullion. The US calendar on Tuesday lacked significant economic news and hence, the prices oscillated between 200-DMA and 5-DMA.
As for today’s trade so far, the precious metal remains capped below the 200-DMA barrier now at 1129.40 and gradually skids southwards as global jitters ease with the stabilizing oil prices. Moreover, stronger than expected Chinese services PMI cooled-off rife China slowdown fears and hence, dulled the safe-haven appeal of gold. The Chinese services sector activity for Jan grew at the fastest pace in 6 months, coming in at 52.4 versus 50.5 expected, and compared to 50.2 last. Markets now await the US ADP non-farm employment change report, which is considered a proxy for the official payroll data due out on Friday, for fresh insights on the Fed interest rate outlook and the resultant impact on the gold prices. The ADP employment change is expected to show private sector jobs additions at 193,000 after 257,000 booked in Jan. In addition, ISM services PMI will be also reported later in the NY session.
Technicals – A daily closing above 200-DMA – key for further upside
On the daily charts, the prices are hovering below the downward sloping 200-DMA at 1129.40, although remains well above the 5-DMA support located at 1122.61. The daily RSI inches lower at 63.40, pointing towards further downside potential. However, the upcoming US ADP report is likely to disappoint markets and weigh on the Fed future rate hikes prospects, and hence, the prices could find renewed bids at the 5-DMA and bounce once again towards 200-DMA. A decisive break beyond the last, the bullion could head higher for a test of the crucial Fib 61.80% resistance at $ 1135.59 (retracement of Oct 15 – Dec 3 slide). However, if the data surprises on the upside and bolsters the case for four Fed rate rises this year, the prices could breach 5-DMA support, below which the immediate support is seen at Fib 50% of the same decline located at $ 1118.30. Selling pressure will intensify below the last dragging prices to the bullish 10-DMA placed at 1116.52.
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