Early in the American session, Gold (XAU/USD) is trading at around 1,755, above strong support at 8/8 Murray and below Friday's high of 1,772.46.
We can see that gold has left a bearish GAP at about 1,770. It is likely that it will develop a strong technical bounce around 1,750 in the next few hours. As soon as the gap is covered, it will be a clear signal to buy with targets at 1,770 and 1781.
On the other hand, the eagle indicator is giving a signal of the extremely overbought market. Once this GAP is covered, we could expect a strong technical correction, for which we could wait for the key levels to sell around 1,770 or 1,781 (+1/8 Murray).
In case Gold breaks the uptrend channel which has been in progress since early November, we could expect a technical correction below 1,749 and the price could reach 7/8 Murray at 1,718 and could even drop to the 200 EMA located at 1,681.
Another factor that could prevent gold from continuing to rise, though it is technically overbought, is that the US dollar index is recovering from last week's sharp drop. This could erode gold strength and cause a change in trend. Hence, the price could drop below the 1,750 (8/8) level.
Our trading plan for the next few hours is to buy gold above 1,750 (8/8), with targets at 1,770, and 1,781 (+1/8). On the other hand, in case there is a pullback at 1,770, it will be a clear signal to sell. In case there is a break of the uptrend channel, it will be a signal to sell, with targets at 1,687. The eagle indicator is giving a negative signal which supports our bearish strategy.
