The XAU/USD pair (Gold vs. the Greenback) closed the day lower than opening on growing perception Democrats and Republicans will be able to resolve the budget crisis and increase the debt ceiling before the deadline. So far there is no significant breakthrough but high-level meetings are keeping hopes alive. Honestly, I don't think that U.S. lawmakers will be stubborn enough to destroy their nation's economy and reputation.
The American dollar was also helped by minutes from the U.S. Federal Reserve's September 17-18 policy meeting, which showed a majority of Federal Open Market Committee members thought that it would be appropriate to begin unwinding asset purchases this year. According to the records, “Most participants viewed their economic projections as broadly consistent with a slowing in the pace of the committee’s purchases of longer-term securities this year and the completion of the program in mid-2014”.
The pattern on the weekly chart suggests that the gold market pricing in a solution to the debt ceiling issue. However, without a strong catalyst, the market will be pushed and pulled in the meantime. During the Asian session today prices are trying to form a bottom stay above the 1302 support level but the technical outlook remains weak.
The pair is trading below the Fibonacci 23.6 level (based on the bearish run from 1795.75 to 1180.21) and the Ichimoku cloud (4-hour time frame). If prices drop below 1300, I think that the selling pressure will increase and we will be heading back towards 1275. On its way down, expect to see some support at 1291. If the bulls build some steam and push the pair above 1316, they may have another chance to tackle the 1326 barrier. Only a daily close above this resistance would change the short-term bearish outlook and open the door to 1345.
