XAU/USD Technical Outlook: Gold Price Breakdown Testing Support
- Gold price breakdown testing initial support targets- broader risk still lower sub-1239
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Gold prices are down more than 4.4% from the July highs with a break below key support fueling an accelerated sell-off in prices. Here are the levels that matter for XAU/USD heading into the close of the week.Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
Gold Daily Price Chart (XAU/USD)
Technical Outlook: In my last Weekly Gold Forecast, we highlighted that prices were “flirting with disaster as prices were testing a critical support barrier at “1236/39- a region, “defined by the 78.6% retracement of the December lows & the 78.6% retracement and converges on basic uptrend support extending off the late 2016-low as well as the median-line of the descending pitchfork formation we’ve been tracking since the April high.”
Gold crashed below this support barrier on Tuesday with the decline breaking below the objective monthly opening range and taking daily RSI deep into oversold-territory - momentum is on the side of the bears for now. The first major support barrier is being tested here at 1214/17 where the 2017 May low / July low-day close converge on the 61.8% retracement of the late-2016 advance. Price has probed below this level today, but look for a daily close to validate with a break lower targeting the 50-line / March low-day close at 1204.
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Gold 120min Price Chart (XAU/USD)
Notes: A closer look at price action highlights this week’s break with gold trading just above the 1214/15 support barrier ahead of the New York close. Initial resistance stands at the trendline confluence at ~1230 with bearish invalidation now back at 1239. A break lower from here targets the lower 50-line around 1210 backed closely by 1204.
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Bottom line: Gold has broken key support & the monthly opening-range lows, but prices are already at initial support targets. Expecting some back-and-fill here towards the July trendline resistance / the median-line before resumption. From a trading standpoint, looking for a rebound off these levels for now- ultimately the recovery may offer more favorable short-entries in the days ahead.
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 +6.22 (86.1% of traders are long) – strong bearishreading
- Long positions are1.4% lower than yesterday and 12.8% lower from last week
- Short positions are 14.0% lower than yesterday and 4.9% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Traders are more net-long than yesterday but less net-long from last week and the combination of current positioning and recent changes gives us a further mixed Spot Gold trading bias from a sentiment standpoint.
See how shifts in Gold retail positioning are impacting trend- Learn more about sentiment!
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Other Setups in Play
- USD/JPY Technical Outlook: Is Yen Relief in Sight?
- Crude Oil Technical Outlook: Prices Plummet towards Initial Support
- US Dollar Trade Levels– Majors Carve Clear Monthly Opening-ranges
- Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at email@example.com
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.