XAU/USD traded higher on Wednesday, breaking above yesterday’s high of around 1797 and surpassing the 1800 mark for the first time since November 2011. Overall, the precious metal continues to trade above the upside support line taken from the low of June 5th, as well as above all three of our moving averages on the 4-hour chart. This, combined with the move above 1800 paints a positive near-term picture, in our view.
We believe that the break above 1800 may have encouraged more bulls to join the action, something that may lead to a test of the 1817 zone, which is marked as a resistance by the high of September 21st 2011. Buyers may decide to take a break after hitting that zone, thereby allowing a retreat. However, as long as the yellow metal would continue to trade above the aforementioned upside line, we would consider the setback as a corrective move before the next positive leg. Another leg north may drive the action above the 1817 area and perhaps aim for the peak of September 19th, 2011, at around 1828.
Shifting attention to our short-term oscillators we see that the RSI has just poked its nose above its 70 line, while the MACD lies above both its zero and trigger lines, pointing up. Both indicators detect strong upside speed and corroborate our view for more upside extensions in the short run.
In order to start examining the bearish case, we would like to see a dip below 1770, a support defined by Monday’s low. Such a move may encourage the bears to dive towards last Friday’s low, at 1758, the break of which may see scope for more downside extensions, perhaps towards the low of June 26th, at 1747.