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Gold Price Technical Outlook: XAU/USD to Threaten Deeper Correction

Gold Price Technical Outlook: XAU/USD to Threaten Deeper Correction

2019-02-06 18:00:00
Michael Boutros, Technical Strategist
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Gold prices have been drifting lower after responding to technical resistance last week and while the decline highlights the threat for further near-term losses, the broader outlook remains constructive. These are the updated targets and invalidation levels that matter on the XAU/USD charts.

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Gold Daily Price Chart (XAU/USD)

Gold Price Chart - XAU/USD Daily

Technical Outlook: In my latest Gold Weekly Technical Outlook we note that the breakout had reached initial resistance at the 78.6% retracement of the 2018 range at 1322 with the, “immediate advance vulnerable near-term. From a trading standpoint, a good place to reduce long-exposure / raise protective stops and look for the pullback.” Note that the February open and channel resistance of the November slope also converge around this threshold and further highlight the technical significance of this range. Price briefly registered a high at 1326 before reversing late-last week and the risk for a deeper pullback remains while below the monthly open.

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Gold 120min Price Chart (XAU/USD)

Gold Price Chart - XAU/USD 120min

Notes: A closer look at price action shows gold trading within the confines of a descending channel formation extending off the January high with price testing slope resistance today in New York. The weekly opening-range remains intact and we’ll be looking for the break for guidance with the risk lower while below 1322. Initials support rests at 1307 backed by 1302 and the 61.8% retracement at 1295- both levels of interest for possible exhaustion / long-entries IF reached.

Initial resistance stands with the weekly open with a breach above 1322 needed to mark resumption of the broader uptrend targeting subsequent resistance objectives at the upper parallel (currently ~1330s) backed by the 88.6% retracement at 1342 and the 2018 high-day close at 1348.

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Bottom line: The immediate gold advance remains vulnerable while below broader slope resistance and keeps the near-term risk lower in price. From a trading standpoint, look for a deeper pullback to offer more favorable long-entries while within the broader November ascending formation - ultimately targeting a breach higher. Keep in mind price is just now setting the February (and weekly) opening-range – stay nimble until we get some further clarity on price.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Gold Trader Sentiment

Gold Trader Sentiment
  • A summary of IG Client Sentiment shows traders are net-long Gold - the ratio stands at +2.09 (67.6% of traders are long) – bearishreading
  • Long positions are0.4% higher than yesterday and 9.0% lower from last week
  • Short positions are 0.6% lower than yesterday and 3.3% 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 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 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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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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

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