Gold Trading in a Triangle, Awaiting the NFP Report to Uncoil

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Gold Trading in a Triangle, Awaiting the NFP Report to Uncoil

Gold has been rallying in 2015 but stalled towards the end of January. While the precious metal retreated, it has not shifted back into the prevailing downtrend. With the NFP report ahead on Friday (2/6), it is not surprising that xau/usd (gold)is trading sideways this week. Let’s take a look at the technical set up and prepare for the key jobs report.

US NFP (Jan.)
Forecast: 236K
Previous: 252K

Gold (XAU/USD) 4H Chart 2/5
gold 4h chart 2/5
(click to enlarge)

Gold rallied in 2015 from a low of about 1168 to about 1307 before retreating. The 4H chart shows gold breaking below a rising trendline and putting in a price top. Then price action started to coil and form a triangle. It is showing indecision in the short-term.

If the NFP comes in at 250K or above, the USD should strengthen, and gold should find another leg down against its January rally. Consideration for next support starts at 1240, a previous resistance pivot, but has risk down to the support/resistance area around 1225. However, we should limit the downside risk to at most 1200, where price will likely be challenged by a rising trendline as we can see in the daily chart below.

If gold falls without a strong NFP report, we should be even more conservative on the downside, and anticipate some support around the 1240 resistance pivot.

Gold (XAU/USD) Daily Chart 2/5
gold daily chart 2/5
(click to enlarge)

If the NFP is weak, such as 200K or lower, then, expect a bullish attempt in gold on the back of USD-weakness. If price can clear above 1280, and the 4H RSI rises back above 60, we should be seeing a revival in the bullish trend. To the upside, the 1307 level will be in sight, with risk of breaking higher to the next resistance pivots at 1322 and at 1345. If there is a pullback, the bullish outlook should provide support around 1270, otherwise gold will still look like it is in consolidation.

Now if the NFP is in-line with expectation and gold still rallies. I would be less inclined to limit the bullish outlook than the bearish outlook noted above. This is because we would be continuing a trend hat started in November, and thus the rally would be in-line with the a prevailing trend – more chance of continuing on momentum. The 1322 and 1345 highs would still be in sight.

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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.