- Summary:
- Gold prices staged a comeback in yesterday's European session and formed a hammer at their previous highs. Is this a sign that XAUUSD could rally soon?
Hammer at Previous Highs and Fib Level
Gold prices initially traded lower early in yesterday’s Asian trading session. XAUUSD dropped to an intraday low of $1,535.39 after opening at $1547.82. However, the precious metal found bids at this price level which previously served as resistance. This area also coincides with the 50% Fib level (drawing from the low of December 6 to the high of January 8). In fact, it steadily traded higher to close the day at $1,545.84, forming a hammer on the daily time frame. If you sign up to our forex trading course, you will learn that this candlestick is often seen as a bullish confirmation. It could mean that XAUUSD may soon rally to its 6-year highs at $1,611.04.
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US-China Deal Priced In?
It would seem that risk appetite surrounding the US-China Phase One Deal weighed down gold prices at first. The two countries are due to sign their agreement today in Washington. This is not exactly a surprise to market participants and yesterday’s price action on XAUUSD reflects that the event has already been priced-in.
Of course, it may have also helped that US data yesterday fell short of being impressive. The headline CPI figure for December printed as expected at 0.2%. However, excluding the price of volatile items, the core inflation figure came in less than forecast at 0.1%.
Gold Price Outlook
Now, before gold prices can make a run for the $1,600.00 handle, buyers will need to push prices beyond resistance around $1,555.00. There is a confluence of resistance at this price from the top of the falling channel and the 100 SMA and 200 SMA. A strong bullish close above this price would mean that the next near-term resistance will be at $1,562.08 where XAUUSD hit highs on January 10. After that, it would be the $1,600.00 handle.
On the other hand, if buyers are not able to sustain their momentum, a bearish engulfing candle may mean that XAUUSD has room to move lower. Near-term support is at yesterday’s lows at $1,535.82.