If you were too busy focusing on major fiat currency pairs in the last few days, you should know that gold was not spared from the U.S. dollar’s domination.
XAU/USD extended a downswing that started in the last days of December and now the pair is trading just above the $2,000 major psychological handle.
How low can XAU/USD go before the bulls jump back in?
XAU/USD 4-Hour Chart by TV
Optimism from yesterday’s Wall Street trading as well as speculations of the People’s Bank of China (PBOC) potentially cutting its reserve requirement ratio (RRR) have weakened the demand for the U.S. dollar.
Remember that directional biases and volatility conditions in market price are typically driven by fundamentals. If you haven’t yet done your fundie homework on gold and the U.S. dollar, then it’s time to check out the economic calendar and stay updated on daily fundamental news!
Any anti-USD trend may be reflected on XAU/USD, which is conveniently trading at an ascending channel and S1 ($2,020) Pivot Point support in the 4-hour time frame. And look at the 100 and 200 SMAs also supporting further upside moves!
XAU/USD bulls who believe that the gold will extend its uptrend against the U.S. dollar may consider scaling in at current levels and then stepping up position sizing at the first signs of bullish momentum.
The $2,070 previous highs could serve as initial targets though gold bugs can also consider the R2 ($2,104) Pivot Point area if there’s enough buying pressure.
If your research points you to the U.S. dollar gaining ground against gold in the next couple of days, then you can also consider placing orders below the support zone that we’ve marked.
A downside breakout may attract enough XAU/USD bears to the S2 ($1,995) Pivot Point level. Depending on the fundamental drivers and the decisiveness of the breakout, we could also see a start of a downtrend if XAU/USD breaks below its trend line support.