What to Make of this Bullish Correction in Gold (XAU/USD)

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What to Make of this Bullish Correction in Gold (XAU/USD)

Gold  has been in bullish correction this week. This is mainly due to a correction against USD-strength across the board. However as we will see, the downtrend is still in play, and this week’s price action has been only a little nudge that has not thrown the bearish outlooks off track.

Gold (XAU/USD) 10/10
gold 4h chart 10/10

(click to enlarge)

Key Levels:
So far this week, price has rallied from 1182.95 to 1233.40. It has broken above the 100-, and 50-period simple moving averages in the 4H chart, and pushed the 4H RSI above 60. This shows a slight shift from a bearish market to possibly a sideways market, short of signaling any stronger bullish correction. This is because the 1235-1240 area represent a key resistance area in the short-term, involving a previous resistance and the 200-period SMA in the 4H Chart. A break above 1240 can signal a significant period of consolidation, and further bullish correction.

There are a couple others levels that are important if the market is to build further bullish correction.
1) A break below this week’s rising trendline could introduce some bearish continuation plays.
2) The 1205-1210 area is essentially the central point of this week’s price action. If buyers there can support gold, then the bullish continuation scenario will be more likely. A break below 1200 might revive the bearish trend.

Gold (XAU/USD) Daily Chart 10/10
gold daily chart 10/10
(click to enlarge)

Bullish Correction Scenario:
In the daily chart we can see that  if price indeed comes back to around 1205 and bounces, we will have an inverted head and shoulders pattern developing. Also, whether it will be this price bottom or not, a break above 1240 clears a falling trendline, and a previous support pivot hat can be considered a resistance factor.

In this bullish correction scenario, we probably should monitor the 1270 area. In the 4H chart we see that the 200-period SMA is around this area. In the daiyl chart we can see that 1270 is the lower bound of a previous support area, as well as a falling trendline coming down from July’s high at 1345.28.

Overall Outlook:
Even with additional bullish outlook in the short to medium-term, gold still looks bearish. However, we have to respect the price action and momentum shown in the short-term time-frames, and if we are to stay bearish, we have to be prepared for some upside risk toward 1270.

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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.