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Gold Price - Rising Wedge Formation on Verge of Collapse after US Job Data

Gold Price - Rising Wedge Formation on Verge of Collapse after US Job Data

2014-02-07 21:03:00
Research, Research Team
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Gold_Price_-_Rising_wedge_formation_body_1.jpg, Gold Price - Rising Wedge Formation on Verge of Collapse after US Job Data

Main Points:

• A breakout through rising wedge price pattern is expected very soon

Gold Prices are bullish as far as prices remains above $1182

• US Non-Farm Payrolls missed forecast, unemployment rate slumped to five-year low

Gold Price once again faced rejection at the 50% fib level resistance on Friday after mixed US jobs data. Thus, a two-month long daily rising wedge price pattern appears to be on the verge of collapse. Gold Prices are being traded around $1263 an ounce at 15:41 GMT on the COMEX division of New York Mercantile Exchange (NYMEX). Immediate support can be noted at $1250, which is the 38% fib level and channel support as shown in the following chart.

A break and daily close below channel support will break the two-month long rising wedge price pattern and expose $1236, which is the 55 Daily Moving Average (DMA). Below $1236, the next major support is seen near $1224, i.e. the 23.6% fib level and the last important support level before the swing low of the previous wave. Our bias about Gold price will remain bullish until the price dips below $1182 and prints a Lower Low (LL).

Gold Price Chart

Gold_Price_-_Rising_wedge_formation_body_Image35.png, Gold Price - Rising Wedge Formation on Verge of Collapse after US Job Data

On the upside, an immediate hurdle can be noted near $1282, which is the channel resistance, which can be seen in the above chart. A break and daily close above channel resistance will result in an upside breakout and may threaten $1292, which is a confluence of the 61.8% fib level and 200 DMA. A Higher High (HH) above $1278 will confirm bullish bias. Research shows that a Rising Wedge Formation ends at a downside breakout in 69% of cases. In upside breakouts, price usually remains vulnerable and ultimately pulls back a few days after the breakout.

Both Relative Strength Index (RSI) and the Commodity Channel Index (CCI) are hovering in neutral territory, meaning long moves might be in play very soon. A slight positive divergence may also be noted with MACD on higher timeframes. Meanwhile, non-farm payrolls in the US rose slower than expectations. However, the unemployment rate slumped to the lowest level since October 2008, according to Labor Department report. The economy could create just 113,000 jobs in January, far less than the median projection of analysts, which was around 180,000 to 185,000. Conversely, the unemployment rate hit 6.6% last month, i.e. at a touching distance from the Federal Reserve’s 6.5% threshold, after which a tight monetary policy stance could be a possibility.

After a dip in the jobless rate during January, it is now pretty likely that the Federal Open Market Committee (FOMC) policymakers will cut stimulus once again by $10 billion at the next monetary policy meeting. This is due to the job data result, which was almost the same in December, when the Fed made its tapering in QE decision. It is to be noted that the next FOMC meeting will be headed by the new Fed chairperson Janet Yellen, who has been a prominent dovish voice among Fed policymakers. Further tapering in the monthly asset purchase program worth $65 billion will provide more strength to the US Dollar, which is negatively correlated to gold prices.

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