Gold Analysis: Downside favoured as USD rebounds, eyes $ 1073

XAU/USD (gold prices in terms of the US dollar) staged a solid comeback extended over the last two trading session and bounced-off fresh multi-year lows struck at 1063.20. On Thursday, the prices witnessed heavy gains and rose to as high as 1087.51 levels on the back a technical correction seen in the greenback after last week’s extensive rally backed by increased Fed rate hike bets. The renewed signs of life in gold prices were triggered following the release of FOMC minutes on late Wednesday. The FOMC minutes did not offer anything new to markets, highlighting the Fed’s non-committal stance towards the Dec rate hike options. The prices did surpass the 10-DMA at 1083.44 but failed to sustain above the last and finally closed the day in the green at 1082.08.

In today’s trade so far, the yellow metal is seen posting moderate losses, deflating from previous peaks and hovers around 1080 mark. The pair eased this session as the US dollar halted its corrective slide and resumed the recent bullish momentum, as the recent streak of upbeat US fundamentals and hawkish Fed speaks, both hint towards an imminent Fed lift-off next month. Both Fed official Lockhart and Fischer said that the Fed remains on track to raise rates this year and the Fed move is well communicated to markets. Looking ahead, the US dollar is expected to remain supported in absence of any economic data due for release today. While Fed’s Dudley speech later tonight will also provide further boost to the USD at the expense of the bullion. Moreover, the euro is expected to remain heavily offered on further easing bias as markets await ECB Chief Draghi’s comment, which is likely to drag gold prices lower. As off-lately gold prices are seen having a direct correlation with the EUR/USD pair.

Technicals – Locked-in ascending triangle on hourly charts, looks weak

On hourly charts, the pair trades in an ascending triangle formation and has failed on several occasions near the horizontal resistance placed at 1086.46 levels. The prices have also breached the 200-SMA and 20-SMA located at 1082.76 and 1081.90 respectively in last hours. While the hourly RSI has dropped sharply lower and breaches the mid-lines to enter into the bearish territory. Hence, to the downside, the prices find immediate support at the horizontal 100-SMA at 1078.12, a break below which the bullion could test the upward sloping 50-SMA at 1076.24. Selling pressure is likely to intensify below the last, dragging the pair to triangle support at 1073 levels. In case the prices manage to hold the 50-SMA support, we could see a minor recovery towards the 200-SMA. However, the upside seems limited as the USD bulls are expected to remain in control in the day ahead.