Early in the European session, XAU/USD is trading below the 21 SMA and we can see a breakout of the uptrend channel that has been underway since July 20.
Having reached the maximum at 1,807, gold began a technical correction and could be vulnerable to further decline.
If the downward trend continues, it could weaken the strength of the metal and the price could reach the support zone of the 200 EMA located at 1,770 in the next few hours.
XAU/USD is retracing below the psychological level of 1,800, which warrants some caution on the part of the bulls. This level is the key as above it could mean an advance for gold, but below it is expected to set the stage for a fall towards the support level of 1,750 (4/8).
Gold is showing signs of being overbought and exhaustion of bullish strength. A drop towards the area of 1,770 (200 EMA) or 1,750 (4/8) could still be viewed as a buying opportunity due to concerns about an economic slowdown and the US-China tensions over Taiwan.
After 20 days within a strong bullish trend, gold could start a new bearish sequence, reverse its trajectory and fall towards the key support zone of 1,750. The price could even fall to 3/8 Murray located at 1,718.
For gold to resume the uptrend, it will need to trade back above 1,790. Above this level, it is likely to reach 1,800 and the strong resistance of 6/8 Murray at 1,812.
Our trading plan for the next few hours is to sell below 1,787 with targets at 1,770 and 1,750. The eagle indicator is giving a negative signal which supports our bearish strategy.