Gold: ST Flag Pattern and the Falling Trendline from July

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Gold: ST Flag Pattern and the Falling Trendline from July

This week, gold sprung above last week’s consolidation structure under 1220, as we can see on the 4H chart. That breakout initiated a bullish outlook, although the 1240 area will be key as we will see in the daily chart.

Gold (XAU/USD) 4H Chart 12/12
gold 12/12 4h chart
(click to enlarge)

First off, the 4H chart shows that during the 12/10 and 12/11 sessions, gold  has been trading in a very short-term flag pattern. Still, the bullish bias remains as price holds above December’s rising speedline as well as the 200-, 100-, and 50-period SMAs. The RSI has tagged 70 showing bullish momentum in this time-frame, and it will reflect maintenance of this momentum unless the 4H RSI dips below 40.

Bullish Outlook: As far as price, if it breaks above 1232, it is likely heading for another test of the 1238-1240 area (refer to daily chart to see resistance factor here). We can see that if price does indeed clear above 1240, it will have broken above a key falling trendline from July, and would therefore shift the bearish mode into at least a sideways mode if not a bullish one.

Bearish Outlook: To the downside, a break below 1215 would break below December’s speedline, but this does not necessarily suggest bearish continuation. The 1200-1210 area is still an area of buyers if gold is to remain bullish. If price does break below 1200, and the 4H RSI dips below 40, showing loss of bullish momentum, then we can consider the bearish scenario at least in the short-term, if not revived for the medium-term. This short-term conservative bearish outlook would be limited to the 1140-1150 area, just above the 1130 low on the year.

Gold (XAU/USD) 12/12 Daily Chart
gold daily chart 12/12
(click to enlarge)

Falilng Trendline: When we look at the daily chart, we can see the importance of 1240, because it coincided with a falling trendline that’s given elbow space. Above 1240, price will have broken the trendline and the 100-day SMA.

Momentum at Crossroad: The daily RSI is at 60. This is kind of the last defense for bearish momentum. If gold is to remain bearish, the daily RSI should hold below 60, forgiving some elbow space for a brief violation. A break above 60 would suggest a loss of bearish momentum.

Final Words: If price breaks above 1240, we have the 1256 resistance than the 1280 pivot as the next key resistance in the short to medium-term. Below 1200, we mentioned that the 1140-1150 level will be in sight for the short to medium-term.

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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.