As we approach the FOMC statement and subsequent press conference, the USD has been slowly fading its recent strength. We saw this in USD-crosses such as the EUR/USD, and we are also seeing this commodities priced in the USD, such as gold (XAU/USD) and silver (XAU/USD). Let’s look at their respective charts and think about what tomorrow’s reaction might suggest.
Gold price found support at 1225.64 at the beginning of the week, and has since consolidated, rebounding to about 1242. The 4H chart shows the consolidation as a possible flag pattern developing. The prevailing trend is still intact:
– The 200-, 100-, and 50-period SMAs are still in bearish alignment, sloping down, and spreading apart.
– Price is still below these SMAs.
– The RSI is still holding below 60, showing maintenance of the bearish momentum.
(click to enlarge)
If the reaction is bullish, we might want to monitor 2 things:
1) After the FOMC event risk, will a bullish reaction break above 1250, the trendline from a high around 1296, and push the 4H RSI above 60? If so, we may have found a medium-term bottom at 1225.64 for a medium-term consolidation/bullish correction.
2) Will a bearish reaction push below 1225. If so, the trend is intact, and there is still downside risk toward the 1180-1185 area, which represent the 2013 and 2014 lows.
Silver prices have already made fresh lows on the year, with only little room until the 2013-low of 18.20. Much like gold, silver is consolidating this week in what appears to be a flag pattern so far. Just like gold, the 4H chart still represents a bearish trend that is intact.
(click to enlarge)
Here’s what we should monitor.
1) There is some upside risk toward 19.20, or the falling trendline originating from the July high at 21.57. This is a key trendline, so we should monitor to see whether a bullish reaction to the FOMC event risk can break above this resistance. If so, silver should be in a medium-term consolidation/bullish correction. If not, and price returns below 19.00, there is still downside risk back toward the current low of 18.46 and the 2013-low at 18.20.
2) If price has a bearish reaction, but fails to clear below 18.46, we should also take that as a sign of pending medium-term consolidation/correction. If the reaction extends lower, then we should watch the 18.20 level given some elbow space down to 18.00 for support.