XAU/USD tumbled on Friday, breaking below the short-term upside support line drawn from the low of May 30th. Then, the metal rebounded somewhat, but the bears took charge again from near that line and pushed it lower. The fact that the price remained below the upside line paints a somewhat negative picture, but we prefer to wait for a clear break below 1382 before we start examining the case of a complete bearish reversal.
Such a dip would confirm the completion of a “double top” pattern on both the 4-hour and daily charts and may encourage the bears to step on the accelerator and push towards the 1358 area, marked by the inside swing high of June 14th. Now, if that level is not able to halt the slide, its break may allow more bearish extensions, perhaps paving the way towards the low of June 19th, at around 1341, or the low of June 17th, near 1333.
Both the RSI and the MACD suggest that the yellow metal may have the necessary momentum for breaking below 1382, and thereby completing a double top. The RSI lies below 50 and looks to be heading towards 30, while the MACD stands below both its zero and trigger lines, pointing south as well.
On the upside, we would like to see a strong recovery above 1425 before we abandon the bearish case. Such a move would bring the price back above the aforementioned upside line and may initially target the 1438 key resistance zone, marked by the peak of July 3rd and fractionally below the high of June 25th. That said, we would like to see a clear close above that area before we get confident on the resumption of the prevailing uptrend. Such a move would confirm a forthcoming higher high and would drive the metal into territories last tested in May 2013, perhaps aiming for highs of April that year, at around 1487.
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