Gold (XAU/USD) Awaiting a Falling Wedge Breakout

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Gold (XAU/USD) Awaiting a Falling Wedge Breakout

When you look at the 4H Gold chart, you see see that price action, since making the July-high of 1345, can be described as a falling wedge pattern. By many technical analysis measures, this is a bearish market.

Gold (XAU/USD) 4H Chart 8/6
gold 8/6 4h chart

(click to enlarge)

1) Price has lower highs and lower lows.
2) The moving averages are in bearish alignment. (200-period above the 100-period above the 50-period SMAs).
3) Price is trading below the moving averages.
4) The RSI has tagged 30 and held below 60 (reflects maintenance of the bearish momentum).

On the other hand, you know that 2014’s price action has been sideways in general. The moving averages are relatively flat, which indicates there is no bearish trend even though price action has been bearish.

The 1300 level is a psychological one. Plus a break above this level should clear above the falling wedge as well as the 1297.10 pivot from last week. Also it would clear above the 100-, and 50-period SMAs.

The bullish breakout would be more interesting than a bearish one, especially when you consider the daily chart:

Gold (XAU/USD) Daily Chart 8/6
gold daily chart 8/6

(click to enlarge)

1) The bullish breakout opens up the 1345 hig.
2) In the daily chart, you can see more room until the triangle resistance than the triangle support which is around 1270. The 1270 area is also reinforced by common support levels from April and May. If you respect the triangle resistance, there is still room to at some common highs around 1330.
3) In the daily chart, a break above 1300 pushes price above the cluster of 200-, 100-, and 50-day SMAs.
4) Meanwhile, the RSI in the daily would confirm a hold above 40, showing maintenance of bullish momentum.
5) A break below 1260 might be needed to open up the bearish scenario. This should first open up 1240, then the 1200 handle and the lows on the year around 1183.

Finally, from a geopolitical risk perspective, tension should give gold a boost. Even if this is not the case as we are seeing now, it should not have a bearish effect on gold.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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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.