Gold price drops to $1280 on USD strength and improved sentiment

London (Oct 20)  The precious metal struggled to show resilience against the buck on Friday, forcing the XAU/USD pair to give back yesterday's gains. As of writing, the pair was trading at $1281, losing $8.5, or 0.66%, on the day.

Yesterday, Gold was able to find demand as a traditional safe-haven and gather strength amid a broad-based risk-off mood. After recording substantial losses on Thursday, major European equity indexes started the day firmer on Friday as the concerns over the political turmoil in Spain faded away. The Spanish government announced that it would meet on Saturday to discuss the triggering of Article 155 of the Spanish Constitution, which would block Catalonia's autonomy. At the moment, the Europe Stoxx 600 is up 0.3% while the German DAX and the UK's FTSE are gaining 0.45% and 0.25% respectively.

On the other hand, the US Dollar Index, which tested the 93 handle during the NA session on Thursday, started the day on a positive note on Friday after the US Senate approved a budget plan for the 2018 fiscal year, that would allow the Trump administration legislate the tax-reform without the support of the Democrats. “Great news on the 2018 budget @SenateMajLdr McConnell - first step toward delivering MASSIVE tax cuts for the American people!,” US President Donald Trump tweeted earlier today. At the moment, the DXY is at 93.40, gaining 0.45% on the day.

•US Dollar firmer around 93.30

Later in the day, the risk perception of investors and the mood surrounding the greenback could continue to drive the pair's price action.

Technical outlook

With today's drop, the CCI indicator on the daily graph turned south below the 0 mark and is moving closer to the -100 handle, suggesting that the bearish momentum is gaining strength. On the downside, the pair could encounter the first technical support at $1276 (Oct. 19 low) ahead of $1265 (200-DMA) and $1260 (Oct. 6 low). On the upside, resistances align at $1290 (daily high), $1300 (psychological level) and $1306 (Oct. 16 high).

FXstreet

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