Gold in Choppy Consolidation Awaiting Breakout

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Gold in Choppy Consolidation Awaiting Breakout

Gold has been in a choppy upwards consolidation since hitting a multi-year low at 1130 earlier in November. From the 4H chart, we can see 2 phases of this November consolidation.

Gold (XAU/USD) 4H Chart 11/26
gold 4h chart 11/26
(click to enlarge)

Phase 1 – Price Bottom: The first part of the consolidation was during the first half of the month, where price action formed a price bottom. You can argue that it was a skewed inverted head and shoulders pattern, but the main takeaway was the break above 1175-1180 neckline, which started another phase of the consolidation/bullish correction.

Phase 2 – Bullish Correction: The second phase first tested the 1175 and respected this former resistance as support. Then it has been in a choppy consolidation again with a high just under 1208. This week, gold has been trading in a narrow sideways consolidation roughly between 1208 and 1190.40. This range sets up a breakout.

Gold (XAU/USD) 1H Chart 11/26
gold 1h chart 11/26

(click to enlarge)

Bullish in the Short-term; Consolidation:
When we drop down to the 1H chart, we can see the consolidation in more detail. First of all, we can see that in this time-frame, the market looks bullish based on the higher highs and lows, the relative position of the 200-, 100-, and 50-hour simple moving averages (SMAs), and the fact that price is above all three SMAs. Furthermore, the RSI has tagged 70 and held above 40, showing maintenance of the bullish momentum.

Now, if price falls below 1190, it will break this week’s range AND below the noted SMAs. If the 1H RSI also falls below 40, gold may be initiating a bearish continuation swing. In the near-term, the 1175-1180 support/resistance pivot area will come into play again. A break below 1175 opens gold up to even more bearish continuation pressure towards a common low around 1147, then the 1130 low on the year.

Gold (XAU/USD) Daily Chart
gold daily chart 11/26

(click to enlarge)

If price instead breaks above 1208, it is continuing November’s bullish correction. In the daily chart, we can see that it will also break above the 50-day SMA. However, the prevailing downtrend is still intact, so we should watch out for sellers first at 1220, which was a previous support/resistance pivot, and where a falling speedline from August resides. Above that, the seemingly last line of defense is around 1240, or the falling trendline that comes from July’s high.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.