- Gold sell-off testing support at fresh yearly lows- Risk is lower sub-1292
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Gold prices are down 2.5% from the April high with a four-day decline now testing fresh yearly lows. These are the updated targets and invalidation levels that matter on the XAU/USD charts this week. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
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Gold Daily Price Chart (XAUUSD)
Technical Outlook: In my latest Gold Weekly Technical Outlook we noted that, “From a trading standpoint, the risk remains weighted to the downside while below 1302 but ultimately, a larger setback should offer more favorable entries closer to the yearly range lows.” Price is probing this support zone now at 1275/76 – a region defined by the January opening-range low and the 38.2% retracement of the 2018 advance.
A break / close below this threshold is needed to keep the immediate short-bias viable targeting the 2018 slope (red) and a more significant support confluence at 1253/58 – an area of interest for possible gold price exhaustion IF reached. Monthly open resistance stands at 1292 with bearish invalidation steady at 1302.
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Gold 120min Price Chart (XAUUSD)
Notes: A closer look at price action shows Gold trading within the confines of a near-term descending pitchfork formation extending off the March / April highs with a four-day decline taking gold within pips of the lower parallel. Yearly open resistance stands at 1280 backed by the 38.2% retracement / median-line at 1287- a rally surpassing this zone would shift the focus towards subsequent objectives at the weekly opening-range high at 1292 & the 61.8% retracement at 1296. Support rests with the lower parallel, currently around ~1268 backed by the 100% extension at 1258 and the 50% retracement at 1253 – both levels of interest for exhaustion / long-entries IF reached.
Bottom line: Gold is approaching down-trend support just lower at the objectively yearly range lows and leaves the immediate short-bias at risk while above 1275- expecting side-ways to lower price action / look for a bigger reaction on a test of slope support. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops- IF price is indeed heading lower, look for failure / exhaustion ahead of the median-line on a recovery here. Keep in mind we’ll have to re-adjust the Fib levels if a new low is registered. Review our latest Gold 2Q forecasts for a longer-term look at the technical picture for XAU/USD prices.
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 +3.24 (76.4% of traders are long) – bearish reading
- Long positions are4.2% higher than yesterday and 6.3% higher from last week
- Short positions are 4.7% higher than yesterday and 5.0% higher 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. Yet traders are less net-long than yesterday but more net-long from last week andthe combination of current positioning and recent changes gives us a further mixed Gold (XAU/USD) 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