During the 10/22 session, the markets put on USD strength across the board. Gold priced in USD (XAU/USD) fell from a high on the month at 1255.23 (10/21) down to just above 1240 by the end of the 10/22 session.
(click to enlarge)
Bullish Confirmation Above 1240:
The intra-session decline is essentially testing the commitment of the bullish breakout from a flag pattern formed last week. The 4H chart shows the breakout and if price can hold above 1240, the breakout is still in play. In this scenario, price would be holding above the 200-, 100-, and 50-period simple moving averages (SMAs), and the RSI would hold above 40. This represents bullish bias and maintenance of the bullish momentum, albeit a weak one in the 4H chart. It will also hold above a rising speedline from the 1205 low during the 10/7 session.
Bearish Breakout Scenario:
If price falls below 1238, it would break below the support factors: 1) a rising line 2) the 50-period SMA 3) and a resistance pivot. This would suggest at least a shift of pace, but not necessarily signal a bearish continuation. A break below 1230 however would mark the first lower low of significance in October and will be a stronger bearish continuation signal, especially if the 4H RSI falls below 40.
If price does fall below 1230 we should turn to monitor a subsequent pullback. If price can then hold below 1240, the bearish continuation attempt would probably be in progress.
Let’s take a quick look at silver because it has also been consolidating in October.
Flat Consolidation; Breakout Scenarios:
The consolidation has been flat for silver as it rallied from 16.67 to 17.72 then started ranging roughly between that high and 17.00. Today’s dip brought price near the 17.00 area. If price falls below 17.00, pressure is back on the 16.67 low, with further downside risk because the prevailing downtrend is intact. In this scenario, we should expect gold to follow suit and break below 1230.
On the other hand, a rally back above 17.40 puts pressure back toward the 17.72 high and continues the October mode of consolidation. In this scenario, gold should also be continuing its October mode, and put pressure on its October high of 1255.38, with risk for further upside in its bullish correction development.
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