Gold (XAU/USD) Signals Bullish Outlook with a Wedge Breakout

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Gold (XAU/USD) Signals Bullish Outlook with a Wedge Breakout

During the 8/6 US session, Gold (XAU/USD) price rallied sharply from around 1290 to about 1310. This rally is important because it broke above a falling wedge pattern, signaling a bullish outlook at least in the short-term. Here are some notes on this breakout:

1) Note also that the RSI is clearing the 60 level, which signals a loss of bearish momentum.

2) The bullish outlook has the 1330-1335 area in sight. Why not the 1345 high? In the daily chart you can see a triangle pattern describing 2014’s general price action. A price rally will meet this triangle resistance before reaching 1345.

3) There might be some resistance around 1313, last week’s high as well as the 200-period SMA in the 4H chart.

4) If price falls from the resistance around 1313, a key support will be in the 1290-1295 area. A break below 1290 might invalidate today’s breakout swing. Being able to hold above this area and returning above 1300 would be a strong indication that the market is turning bullish with upside toward 1330-1335.

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

(click to enlarge)

5) The daily chart chart also shows a possible shift into a bullish outlook in the medium-term. Price is holding above the moving average cluster after crossing above it. Treating the SMAs as support is a “slingshot” signal for a bullish outlook. The daily RSI reading held above 40 after tagging above 70, which reflects maintenance of the bullish momentum established during the June rally.

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

(click to enlarge)

6) A break above the triangle resistance will open up the 1345 high and then the 1388 high on the year. The bullish outlook will improve if we start showing bulls in control, which can be the case if price can stay north of 1300 after an attempt to cross back under it.

7) This bullish outlook might be invalid if price falls below 1290, in which case the focus would turn toward the 1280 low, and then the 1270 area, which would be a common support area from April-May, as well as the triangle support.

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.