Gold Analysis: XAU/EUR weakness to persist

XAU/USD pair – Daily Chart

Gold prices in terms of US dollar (XAU/USD) snapped previous losses and firmed on Tuesday, advancing to daily high at 1196.30 as the US dollar was broadly sold-off largely on the back of rising EUR/USD on Greek hopes. Also, downbeat factory orders data from the US also weighed on the greenback, boosting XAU bulls higher. However, the pair got rejected at 10-DMA resistance at 1196.63 and retreated to 1193.64 at close.

XAU/USD edged lower in today trades in running and hovers in a narrow range around 1191.60 levels, with the upside capped by 10-DMA located at 1195 levels and the downside restricted to 5-DMA support located at 1190.85. XAU/USD trades cautious with lack of fresh incentives amid persistent broad UD weakness while markets await US trade data and ADP employment data for further momentum. The ADP figures are considered as a proxy for the main market mover due on Friday – NFP.

On the daily charts, the daily RSI hovering around 46 aims lower, suggesting more room for declines. Hence, the pair is expected to retest the 5-DMA support. A break below the last the pair could drop to the channel trend line support of 1184.15. In case the pair fails to breach the 5-DMA, the pair may rebound higher for a retest of 10-DMA at 1195, beyond which XAU bulls are likely to take over and may test the 50-DMA resistance located at 1198.35 levels. Continued strength in EUR/USD and once again discouraging US macro data due later today may even push the pair higher beyond 1200 levels.

XAU/EUR pair – Daily Chart

Gold prices in terms of Euro (XAU/EUR) dropped sharply to fresh three week lows at 1066.63 on Tuesday, witnessing a major EUR 22 fall on the day, largely on the back of a sharp rebound seen in EUR/USD backed by upbeat EZ CPI figures and optimism on Greece deal being reached. The shared currency rallied to just few pips short of 1.12 handle versus the US dollar on Monday. Subsequently, XAU/EUR breached the trend line support at 1074 levels and closed the day below the last at 1070.80.

At the moment, XAU/EUR trades at fresh three week lows at 1066 levels as the shared currency extends its recent upward moves across the board ahead of the key ECB policy meeting due later this session. Though the ECB meeting is expected to be a non-event, the ECB Chief Draghi’s latest thoughts at the press conference will be closely watched as Draghi may shed some light on the effectiveness of the Bank’s QE programme and the ECB’s role in a possible deal for Greece. Markets expect optimistic remarks from the ECB President given the recent Euro zone’s return to the inflation arena, further boosting EUR bulls.

Hence, the XAU/EUR pair is likely to remain pressured in the day ahead and may test the next support zone around 1059-1057 levels. A break below the last, selling pressure may intensify drowning the pair to the trend line support located at 1050 levels. The daily RSI at 41 aims sharply lower, suggesting extension of the previous downside momentum. Meanwhile, the upside seems restricted to the confluence of the trend line resistance-turned support, 20-DMA and 5-DMA located around 1077-1078.50 range.