XAU/USD broke sharply the downtrend channel that has been formed since June 28. The metal is now trading at 1,738, above the 21 SMA and above the downtrend channel. It is likely to continue rising but could struggle as it is trading at overbought levels. A technical correction could occur and then the uptrend could resume.
Yesterday, gold rose after the Federal Reserve's decision. The federal funds rate increased to 2.5%. However, this policy move had been already priced in by investors, which caused a reaction against the data.
The US dollar (USDX) fell after the FED announcement and Treasury bond yields dipped slightly lower. This negative correlation that gold has with 2- and 10-year bonds gave the metal a strong upward momentum and the price reached the high of 1,741 in the Asian session.
The 4-hour chart shows that gold has a bullish bias. So, it could reach the first resistance of 4/8 Murray at 1,750. After this level is passed, it could go up to 200 EMA located at 1,764.
The eagle indicator has reached the extremely overbought zone. Hence, a technical correction is expected in the next few hours towards the 21 SMA or towards 3/8 Murray located at 1,718. As long as the price remains above both levels, gold follows its bullish cycle and may reach 1,764 (200 EMA).
On the contrary, with a daily close below 1,715, we could expect gold to weaken and it could fall towards the 1,687 support zone.
The market sentiment report shows that there is 87.84% of traders who are buying gold and 12.16% who are selling. Gold is likely to be in a tough spot for recovery. We could expect a pullback towards the 1,750 area or up to the 200 EMA at 1,764. Then, the price could resume its downtrend.
Our trading plan for the next few hours is to wait for a pullback towards 1,750 or 1,764 to sell with targets at 1,723 (21 SMA).
