Gold Price Forecast: Sell the XAU/USD bounce ahead of ISM Services PMI?

Gold (XAU/USD) sold-off aggressively amid the ongoing broad-based US dollar comeback on Wednesday and finished the day at $1942, having booked a 1.5% loss. The US dollar extended its profit-taking rally after upbeat US Factory Orders bolstered the optimism over the improved economic recovery, triggered by stronger US ISM Manufacturing PMI. Further, the sell-off in the euro on the European Central Bank’s (ECB) jawboning the exchange rate value also aided the recovery in the dollar from two-year troughs. Additionally, Wall Street’s record-breaking rally on US fiscal stimulus hopes and economic optimism also weighed on the safe-haven gold.

So far this Thursday’s trading, gold attempted a pullback from three-day lows but the bounce appeared shallow, as the dollar held onto the overnight gains. All eyes now remain on the US Jobless Claims and ISM Services PMI data for a fresh direction in the yellow metal. In the meantime, ‘sell the bounce’ trading could remain in play, as the technical outlook appears bearish in the near-term.

Gold: Hourly chart

Short-term technical perspective  

On the hourly chart, gold is on the verge of a bear flag breakdown, as it is testing the rising trendline support at $1944.

An hourly closing below the latter will confirm the bearish breakdown, opening floors for a test of last week’s of $1903. The bulls, however, could be offered some temporary respite near Wednesday’s low of $1932.72. The next relevant cushion comes in around the $1925 region, last Friday’s low.

Should the price manage to resist above the latter, a bounce-back towards the robust support now resistance at $1944 will be on the cards. The buyers will then aim for the key $1950 barrier, the convergence of the horizontal 200-hourly Simple Moving Average (HMA) and bearish 21-HMA. The hourly Relative Strength Index (RSI) points south while below the midline, suggesting more scope to the downside.

Gold: Additional levels to consider