The XAU/USD pair (gold prices in terms of the US dollar) rallied to fresh two-week highs at 1142.06 levels on Monday, extending its effort to conquer the downward sloping 100-DMA located at 1144.50 levels. The prices found the catalyst in the worse-than expected US ISM non-manufacturing PMI report, which dragged the greenback lower. The US services sector data reported by ISM showed a drop to 56.9 versus 58.0 estimates. The data added to the recent streak of weak US fundamentals, thus raising concerns over US economic outlook and further dropping expectations of the Fed rate hike this year. The prices quickly retraced from highs and ended the day slightly in the red at 1135.80, below the key Fib 61.80% (last week’s fall) level located at 1136.52.
As for today’s trade so far, XAU/USD extended its side-ways movement and sits near fresh 2-week highs, around 1138 levels. The prices witnessed fresh buying interest this session as the risk-off sentiment returned to markets after the European stocks halted its previous rally and turned in the negative territory, boosting the demand for safe-havens. While the persisting broad based US dollar weakness also keeps the yellow metal supported. Looking ahead, the pair is likely to get influenced by the upcoming US trade data. Markets are expecting a widening of the trade gap to $42.5 billion in August from the $41.9 billion in July. Hence, another weak US data release later today will bolster the XAU bulls further.
Technicals – could test the upside barrier of the potential symmetrical triangle formation
On daily charts, the prices have formed a small white body candle and remains supported above the key Fib 61.80% resistance (last week’s fall) located at 1136.52. The daily RSI has ticked higher above the mid-lines supporting the case for further advances. The prices are likely to retest two-week highs located at 1142.06, beyond which a test of the 100-DMA will become imminent, driving towards the falling trend line of the potential symmetrical triangle pattern located at 1152.20.
Should the data surprise on the upside and the USD reacts positively, we could see gold prices falling back towards the Fib 50% (of the same drop) located at 1130.20, which also coincides with Monday’s low. However, the downside in the pair may remain restricted amid dropping 2015 Fed rate hike bets and a broadly weaker greenback.
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