Gold has been bullish in October, though it should be noted that this rally still within the context of a bearish trend since July’s high around 1345.
(click to enlarge)
The 1H chart shows a bullish market:
1) The 200-, 100-, and 50-hour simple moving averages (SMAs) are sloping up and are in bullish alignment.
2) Price is trading above the SMAs.
3) The RSI has tagged 70 and then held mostly above 40 showing maintenance of the bullish momentum.
4) To start the week, gold broke above a flag pattern, signaling bullish continuation.
(click to enlarge; source: forexfactory.com)
Growth continues to slow in China and this pressures risk sentiment, which should help (XAU/USD). However, the data was likely priced in, and the actual print wasn’t as bad as some had forecast. Still, the fundamentals of a recession looming in the Eurozone and growth on a downturn in China, gold should have some resilience at least in the short-term.
Mute Reaction; Bearish Outlook: The reaction to the data point was mute, but it showed that the bulls ran out of gas today and did not get a recharge. We can expect some near-term bearish correction, but October’s bullish trend is still intact unless there is a break below 1230. That would complete a double top and break below the hourly SMAs.
However, a bullish market should find support in the 1237-1240 area. If that is the case, the pressure should remain on the 1249 high. Now, a break above 1250 extends October’s bullish correction towards the next key resistance area.
(click to enlarge)
Resistance Factors: The next key resistance will be in the 1270-1280 area, which is a previous support/resistance area, and likely where the falling trendline from 1345 will challenge the rally. While we should stay cautious of the prevailing downtrend, the short-term bullish outlook is strengthened by a recent bullish engulfing pattern from last week.
A break below 1230 however would invalidate the bullish engulfing signal and would suggest a bearish continuation.
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