Talking Points:

- Gold Prices Break Monthly Opening Range, Eyes June-High ($1296).

- Nikkei Initiates Bearish Sequence as Continuation Pattern Unravels.

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DailyFX Table

Ticker

Last

High

Low

Daily Change ($)

Daily Range ($)

XAU/USD

1271

1276

1260

11

16

Gold prices may exhibit a more bullish behavior over the coming days as the precious metal breaks the August opening range and climbs to a fresh monthly high of $1276.

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Market participants appear to be turning risk adverse amid the weakness in global benchmark equity indices, and the mixed price action surrounding the U.S. dollar may continue to prop up gold prices as a flight to quality appears to be taking shape. In turn, bullion may make a more meaningful attempt to break out of the downward trend from July-2016, but a failed attempt to test the June-high ($1296) may undermine the near-term recovery in gold prices should a head-and-shoulders formation take shape.

XAU/USD Daily Chart

XAU/USD Daily Chart

Chart - Created Using Trading View

  • Topside targets remain in focus for XAU/USD as it clears the monthly opening range, with a break/close above $1279 (38.2% retracement) opening up the next hurdle around $1288 (23.6% expansion) followed by the Fibonacci overall around $1297 (23.6% retracement) to $1302 (50% retracement).
  • Keeping a close eye on the Relative Strength Index (RSI) as it comes up against trendline resistance, with a break of the bearish formation raising the risk for a run at the June-high ($1296).
  • Nevertheless, failure to clear the topside hurdles will keep the broader outlook tilted to the downside; failure to hold above the $1250 region may spur a move back towards the overlap around $1211 (50% retracement) to $1219 (61.8% retracement).

Ticker

Last

High

Low

Daily Change

Daily Range

JPN225

19742

19947

19654

205

293

The Nikkei (JPN225) has finally snapped the continuation pattern from earlier this year, with Japanese equities at risk for further losses amid growing tensions between the United States and North Korea.

The near-term shift in market behavior may gather pace over the coming days as U.S. President Donald Trump takes a more aggressive stance, and the rise in geopolitical risk may continue to drag on risk sentiment as it dampens the outlook for global growth. In turn, JPN225 may trade to fresh monthly lows as it initiates a bearish sequence, with the benchmark index at risk of facing a larger correction if it fails to preserve the upward trend carried over from 2016.

JPN225 Daily Chart

JPN225 Daily Chart

Chart - Created Using Trading View

  • The sharp decline in JPN225 appears to have stalled ahead of the 19,640 (78.6% retracement) hurdle, which largely lines up with the 100-Day SMA (19,641), but the Relative Strength Index (RSI) appears to be flashing a bearish trigger as is trades back below former-trendline resistance.
  • As a result, a further decline in the benchmark equity index may spur a test of the bullish trend from June 2016, with the next downside target coming in around 19,450 (23.6% expansion) followed by the Fibonacci overlap around 19,280 (23.6% retracement) to 19,330 (23.6% retracement), which sits just above the 200-Day SMA (19,266).

Retail FX Sentiment

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  • Retail trader data shows 70.2% of traders are net-long spot Gold with the ratio of traders long to short at 2.36 to 1. The number of traders net-long is 1.6% higher than yesterday and 1.5% lower from last week, while the number of traders net-short is 22.4% lower than yesterday and 1.3% lower from last week.
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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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