XAU / USD bears turn cautious near descending channel support

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  • Gold is unable to retain its initial gains and falls to new daily lows in the last hour.
  • Sustained buying around the USD is considered a key factor putting pressure on the precious metal.
  • The oversold conditions on the daily chart warrant some caution for bears.

Gold has struggled to capitalize on its modest intraday recovery gains and has encountered new sales near the $ 1,721 region. The precious metal has fallen to fresh daily lows, around the $ 1,707-06 region in the past hour and remains close to the nine-month lows touched on Wednesday.

Buying around the US dollar has accelerated during the European session, which in turn has been considered a key factor that puts downward pressure on gold prices, denominated in dollars. Softer risk sentiment around US equity markets and bond yields could help limit losses for the XAU / USD.

From a technical perspective, the yellow metal has been trending down within a descending channel for the past month. The formation points to a well-established short-term downtrend and supports prospects for an extension of the current downward movement.

That said, the XAU / USD has so far managed to defend the $ 1,700 level, which coincides with the lower limit of the aforementioned channel. Also, technical indicators on the daily chart show initial oversold conditions and warrant some caution for bears.

This makes it prudent to wait for a sustained breakout of the channel support before positioning for any further bearish movement. XAU / USD could accelerate the slide to test horizontal support at $ 1,675-70 en route to the next major support near $ 1,650.

On the other hand, the daily highs, around the $ 1,721-23 region, now appear to act as an immediate hurdle. This is followed by resistance near the $ 1,740 zone, which if broken could trigger a short covering move towards the strong previous support breakout point, now converted to resistance, at $ 1,760-65.

Only a sustained move above this region will negate the short-term bearish outlook and push the XAU / USD towards the round $ 1,800 level. However, any subsequent positive moves are likely to remain limited near the trend channel resistance, currently around the $ 1,809-10 region.

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