Gold prices rose last week, fuelled by continued declines in the US dollar. During the European morning Tuesday, the yellow metal corrected somewhat lower amid a general risk-on sentiment in markets, evident by major stock indices like the S&P 500 hovering near all-time highs, as well as a general sell-off in other safe haven assets like JPY.

Absent some unforeseen risk event, the next major market mover for gold may be tomorrow’s FOMC decision. We think risks are tilted towards a slightly more cautious narrative than previously given lacklustre inflation data and as such, we see the case for the dollar to extend its recent losses. Something like that could help the yellow metal resume its latest uptrend.

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Gold traded lower during the European morning Tuesday after it hit once again resistance at the 1258 (R1) hurdle. Nevertheless, the slide was limited above the upside support line taken from the low of the 27th of January, and also above the lower bound of the short-term upside-sloping channel that has been containing the price action since the 10th of July.

As long as the rate is trading within that channel the short-term outlook of the yellow metal remains positive. If the bulls prove strong enough to take advantage of the 1245 (S1) support territory, we would expect them to aim for another test near 1258 (R1). A decisive break above that obstacle would confirm a forthcoming higher high on the daily chart and may open the way for our next resistance of 1266 (R2).

Zooming out to the daily chart, we see that the metal continues to trade in the sideways range that’s been in place since the end of January, between the 1200 and 1300 territories. The latest recovery began from near the lower bound of the range. This alongside the break above the crossroads of the 1245 (S1) barrier and the upside support line drawn from the low of the 27th of January, increase the likelihood for further upside extensions in our view.

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