Gold (XAU/USD) – False Breakdown Validates Bullish Continuation

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Gold (XAU/USD) - False Breakdown Validates Bullish Continuation

Gold entered the week above a 2-week consolidation range roughly between 1306 and 1326. The breakout signaled continuation of the prevailing bullish trend that began from the 1240.50 low formed at the end of May, but it needed validation since price did not follow through the breakout yet. Instead, Gold is stalling around the 1331 high from April. This week, it has been in a small consolidation range between 1323.75 and 1332.60.

Gold (XAU/USD 4H Chart
gold (xau/usd) 7/2

Today (7/2) we had surprisingly strong ADP Non-Farm Employment Change reading for June, which gave USD strength across the board. (XAU/USD) fell briefly below this week’s consolidation range. However, the immediate pullback has brought price back to the middle of this week’s price range. The inability to follow through the bearish attempt shows respect to the 2-week consolidation as support.

The false breakdown thus adds to the case of a bullish continuation. We just need price to clear above 1332.60. Note that this would also break above the 61.8% retracement at 1332. (Retracement of the 1388.54 to 1240.54 dip.

Gold (XAU/USD) Daily Chart
gold daily chart 7/2

If price does push above 1333, the next near-term resistance will be at the 3/20 resistance pivot of 1342.40. Above that the 1350-1355 is a common resistance area from early in March. Then, we have the 1388.50 2014-high in sight. Since there is not prevailing bullish trend in the daily chart, we should limit any bullish outlook from the current breakout to 1353, or at most 1380.

Tomorrow’s ECB monetary decision announcement and the US NFP will be the key event risk to watch for. If gold can hold above 1315 (middle of previous range) after the releases, the bullish outlook remains in place. A break below 1315 will likely focus price on 1300, and put gold into a consolidation mode, ending June’s bullish trend.

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.