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Gold Prices: RSI Divergence as a Bevy of Headline Risk Awaits

Gold Prices: RSI Divergence as a Bevy of Headline Risk Awaits

2017-06-05 15:25:00
James Stanley, Currency Strategist
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Talking Points:

- Gold technical strategy: Long-term mixed, Intermediate-term bullish, short-term bullish.

- Gold prices put in a bullish break after Friday’s Non-Farm Payrolls report; but a series of market drivers over the next two weeks will likely keep Gold prices on the move.

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In our last article, we looked at the continued bullish run in Gold prices after another ‘higher-low’ point of support was set. But we also looked at a longer-term descending channel that may have offered some element of pause to the continued topside run, as the resistance trend-line of this channel had helped to turn around another strong, bullish move in mid-April.

Gold Prices: RSI Divergence as a Bevy of Headline Risk Awaits

Chart prepared by James Stanley

As Non-Farm Payrolls came-in below expectations on Friday, another wave of USD-weakness hit global markets, and this catapulted Gold prices beyond this trend-line, and right into the 61.8% Fibonacci retracement of the most recent major bearish move (taking the July 2016 high down to the December 2016 low). This set of retracement levels is relevant, as the 38.2% retracement of that same move is what helped Gold prices to find support in early-May after the mid-April reversal.

Gold Prices: RSI Divergence as a Bevy of Headline Risk Awaits

Chart prepared by James Stanley

After price action burst-above the descending trend-line on Friday, prices trickled-higher until, eventually, they ran into this Fibonacci resistance at $1,278.74. Price action closed the week nestled just underneath this resistance area, only to re-open this week above, with support now showing at that prior level of resistance.

Gold Prices: RSI Divergence as a Bevy of Headline Risk Awaits

Chart prepared by James Stanley

Given the veracity of the recent bullish move, and also considering the bullish break of the longer-term descending channel, traders would likely want to move forward with a bullish bias here. For those looking at bearish strategies, they’d probably want to wait until a bearish break of support at $1,278, at the very least, before looking to press down-side strategies.

The complication in lining up longer-term bullish setups at the moment would arise from the fact that the next two weeks present a significant amount of headline risk; and as has become usual with these types of macro-drivers, this will probably bring some continued volatility in Gold prices. This can also be opportunistic for gold bulls, as a down-side reaction in Gold prices to any of the upcoming drivers could bring on support that could open the door for bullish entries. The area around $1,274 could be particularly compelling for such an approach, as this is a prior swing-high that has yet to see any nearby support tests. Just below this level is another prior resistance swing around $1,269 that could be utilized as an ‘s2’ zone of support for bullish continuation plays. And between these two levels, we have the projection of that prior descending trend-line, and this could be usable as well as an example of ‘prior resistance helping to set new support’ in a burgeoning up-trend.

Gold Prices: RSI Divergence as a Bevy of Headline Risk Awaits

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

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