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USD/CNH & Gold Price Action Point to Reversals Gaining Traction

USD/CNH & Gold Price Action Point to Reversals Gaining Traction

2018-08-17 08:01:00
Paul Robinson, Currency Strategist
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Gold, USD/CNH Technical Highlights

  • Gold price reversal and sentiment supportive of a low
  • Correlation between Gold & CNH extremely high
  • USD/CNH reversing hard from near Dec ’16 peak

For an in-depth intermediate-term technical and fundamental outlook, check out the Q3 Gold Forecast.

Gold price reversal and sentiment supportive of a low

On Wednesday, we were discussing the oversold, overly bearish backdrop in gold, but that first we needed to see some type of swift flush and reverse or something of that nature before looking for a low. We didn’t have to wait long, as the past few sessions qualified as flush-and-reverse price behavior, with silver, unsurprisingly and in silver-like fashion, displaying even more capitulation-like behavior, shedding 3 of its 4% in an hour on Wednesday.

As long as gold & silver can hold onto yesterday’s lows on a closing basis, we’re looking for at least a rebound back to the point of origination of the most recent leg lower (~1210 & 15.30). If another leg lower develops we’ll have to reassess.

Check out the IG Client Sentiment to see how other traders are positioned and why it can be used as a contrarian indicator.

Gold Daily Chart (Flush & Reverse)

Gold daily chart, flush and reverse

Correlation between Gold & CNH extremely high

If gold is reversing then so is CNH and vice versa. Gold and CNH have a 3-month correlation of 97%. They are effectively the same market at this juncture. How one plays it is up to the instrument of choice, but be mindful of total risk if trading both.

Gold/CNH Daily Chart (97% 3-mo Correlation)

Gold/CNH daily chart (97% 3-mo correlation)

USD/CNH reversing hard from near Dec ’16 peak

USD/CNH is in the process of carving out a weekly key-reversal bar just shy of the December 2016 high, assuming it doesn’t post a big rally from here. Trade a little higher today or lower and the reversal currently in place will stand as confirmed.

The candle development along with a break in the upward channel on the daily time-frame should usher in more selling, and perhaps in swift fashion. Looking lower, there are minor levels along the way that were carved out as the channel matured, but the broader target is the bottom of the upward grind since last month, right around the 6.60 mark.

USD/CNH Weekly Chart (Key-reversal nearly complete)

USD/CNH weekly chart, key-reversal as long as no sizable rally ensues today

USD/CNH Daily Chart (Channel break to send it lower)

USD/CNH daily chart, channel break to send price lower

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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