Gold Slumps to a Seven-Week Low - 26 May 2016

Gold prices dipped to a seven-week low on Wednesday as growing expectations of a Fed interest rate hike this year continued to weigh on the market. The XAU/USD pair fell as low as $1217.75 an ounce but erased some of earlier losses and closed the day above the $1223 level after Markit's preliminary reading on the U.S. service sector came in worse than expected with a print of 51.2.

The short-term technical outlook remains weak, with the market trading below the Ichimoku clouds on the daily and 4-hour time frames. In addition to that, we have negatively aligned Tenkan-Sen (nine-period moving average, red line) and Kijun-Sen (twenty six-period moving average, green line) lines on both charts. However, we see some profit taking as the market approaches the 1213 level.

XAUUSD Week

If the market holds above 1226, we might head back to the hourly Ichimoku cloud. The bottom of the hourly cloud currently coincides with the 1234.40 level. Therefore, it is essential to anchor somewhere above 1235.50-1234.40 for a push up towards 1243/0 - where the top of the daily cloud resides. Only a daily close above 1243 could provide the bulls extra momentum they need to test the 1250 level. If the daily cloud prevents the market from going higher and prices drop back below 1223, it is likely that we will visit the 1214.50-1213 area. A break down below 1213 would imply that the 1208 level might be the next port of call.

XAUUSD Daily

Alp Kocak
Alp Kocak has been trading Forex since 2003. He writes technical analysis based on Japanese candlesticks and Ichimoku Kinko Hyo.