- Gold prices testing monthly open resistance - constructive above 1201
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Gold rebounded from technical support this week with the rally now testing a critical inflection zone in price. These are the updated targets and invalidation levels that matter on the XAU/USD charts. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
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Gold Daily Price Chart (XAU/USD)
Technical Outlook: In our latest Gold Weekly Technical Outlook we stated that, “Put simply, IF gold prices are going to rebound, next week would be the time- and the support zone we’re trading into would be the place.” The sell-off got a little deeper than expected with price registering a low at 1196 before rebounding with the recovery now testing key near-term, resistance at 1214/16 – a region defined by the November open, the May 2017 low and the 100-day moving average. Note that this pivot zone has fueled numerous price inflections over the past few months and a breach / close above would be needed to suggest a more significant low is in place.
A slight adjustment to our channel keeps the focus on 1201 for support (also the monthly low-day close) – a break below this level risks substantial losses for the yellow metal with such a scenario targeting subsequent support objectives at 1192 an 1180.
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Gold 240min Price Chart (XAU/USD)
Notes: A closer look at price action shows gold rebounding off the lower bounds of the ascending pitchfork formation we’ve been tracking for the past few weeks. A near-term descending slope off the highs caught the lows this week an ultimately a topside breach is needed to shift the broader focus higher again.
Initial resistance stands at 1214/16 backed by 1220 and the 61.8% retracement at 1225. A breach above the median-line of the broader structure (currently ~1230) would put the focus back on a test of more significant long-term resistance zone at 1236/38- look for a larger reaction there IF reached.
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Bottom line: We’re looking for evidence / constructive price action to suggest this week’s decline was just a washout with a breach of this near-term formation to offer guidance. From a trading standpoint, I’ll favor fading weakness while above 1203 with near-term bullish invalidation steady at 1201. That said, use caution here - trader sentiment is showing a large build in retail long-positioning and highlights the risk for another pullback before resumption.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Gold Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long Gold - the ratio stands at +6.3 (86.3% of traders are long) – bearish reading
- Long positions are4.0% lower than yesterday and 4.7% higher from last week
- Short positions are 12.7% lower than yesterday and 16.5% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger Gold-bearish contrarian trading bias from a sentiment standpoint.
See how shifts in Gold retail positioning are impacting trend- Learn more about sentiment!
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- Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com
