- Gold is staging a rebound following Tuesday's sharp decline.
- XAU/USD could extend recovery with a daily close above $1,700.
- 10-year US Treasury bond yield stays below key 1.75% mark.
The XAU/USD pair suffered heavy losses and lost nearly 3% in the previous two trading days before making a sharp U-turn on Wednesday. As of writing, gold was trading at $1,704, rising 1.1% on a daily basis.
On Tuesday, the benchmark 10-year US Treasury bond yield reached its highest level in more than a year at 1.774% but lost its traction in the late American session to close the day below the key 1.75% mark. Although the greenback preserved its strength in the risk-averse market environment on Tuesday, the US Dollar Index lost its traction on Wednesday and triggered a rebound in XAU/USD.
The upbeat market mood, as reflected by the strong performance of Wall Street's main indexes after the opening bell, made it difficult for the USD to continue to outperform its rivals. Additionally, quarter-end flows toward the end of the European session seem to be further weighing on the buck.
Earlier in the day, the data published by the Automatic Data Processing (ADP) Research Institute showed that employment in the US private sector rose by 517,000 in March. This reading fell short of the market expectation of 550,000 but was a strong improvement from February's increase of 176,000.
Later in the session, US President Joe Biden will unveil a massive $2 trillion fiscal package that will reportedly include classic infrastructure spending, green initiatives, as well as investment in human capital. If major equity indexes in the US continue to push higher on this announcement, XAU/USD could easily cling to its gains.
Gold technical outlook
Despite the decisive recovery witnessed on Wednesday, the near-term technical outlook points to a technical correction rather than a change in direction. The Relative Strength Index (RSI) indicator on the daily chart, which dropped to 30 to show oversold conditions on Tuesday, is currently at 40. Furthermore, the current price action seems to be forming the handle of the bearish inverted cup formation, reaffirming the view that gold is in a correctional phase.
XAU/USD could continue to edge higher if it manages to close the day above $1,700 and flip that level as support. Moreover, a climb above 50 in the daily RSI could suggest a bullish shift in the technical outlook. Above $1,700, the next resistance aligns at $1,720 (20-day SMA) ahead of $1,745 (former support).
On the downside, sellers could look to retest $1,680 (cycle low, March 30 low) if gold fails to reclaim $1,700. Static supports coming from April 2020 are located at $1,670 and $1,660.
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