Gold (XAU/USD) Trading at Triangle Apex Ahead of US Inflation Data

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Gold (XAU/USD) Trading at Triangle Apex Ahead of US Inflation Data

Traders are understandably uncommitted as we start the week void of any key event risks, or fundamental releases, although we did see risk aversion in the markets as the tension surrounding Ukraine grows.

Although we did see the market push from 1305 to 1318.40 to start the week, we saw price settle around 1312 by the start of the Tuesday 7/22 session. Let’s take a look at the technical set up.

Gold (XAU/USD) 4H Chart 7/22
gold 4h chart 7/22

(click to enlarge)

The 4H chart shows:

1) Price trading between a falling trendline and a rising trendline, both formed since last week’s price action.
2) The RSI has swung between 70 and 30. The latest swing was to 30, and the RSI is still below 60, which reflects a possible start in the building of the bearish momentum.
3) Price is trading between the moving averages. Ability to push either above the 100- and 50-period or below the 200-period SMAs in the 4H chart should give the market some sense of direction.

Inflation Data (7/22):
During the 7/22 session US inflation data can guide XAU/USD into a short-term trend. If inflation picks up, and the annualized inflation rate is above 2.1%, then we are very likely to see a push in the USD, and thus a decline in XAU/USD. If the inflation rate on the year falls back below 2.0%, then we are likely going to see some upside risk in gold.

Gold Daily Chart (7/22)
gold 7/22 daily chart

(click to enlarge)

ABC Correction:
If inflation is hot, and price falls below 1305, we are likely going to see another bearish swing. In the daily chart above, we see that a bearish swing in the ABC correction structure would project toward the 1270-80 support/resistance pivot area. This short-term bearish outlook would be within the medium-term triangle mode, which basically represents 2014 price action.

If the bearish outlook does develop after the inflation data, expect some short-term decline, but also monitor for buyers as price approaches the 1270 area, or the triangle support.

Test of triangle Resistance:
If inflation softens, and the USD softens, gold is likely going to be bullish in the short-term, at least toward the triangle resistance seen in the daily chart. A break above 1350 will clear the triangle and introduce a bullish outlook. Otherwise, the bullish outlook after soft inflation should be limited to the very short-term.

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.