Gold has carved out fresh weekly highs on disappointing US data suggesting a short-term return to risk off sentiment, and the potential for a reversal of the long term downtrend.
The XAUUSD formed something of an ascending triangle throughout Tuesday’s action, offering up pattern resistance at 1284.35 as the level to watch around Wednesday’s key US releases. The headline release, the ADP nonfarm employment figure, missed expectations, reported at 191K versus a consensus forecast of 195K. The US morning breakout validated the pattern, offering an upside target at 1291.70. Price reached this point within 15 minutes, and is currently undergoing a period of consolidation at Monday support. If the bullish momentum holds, look for an upside break out of the current consolidation towards key weekly resistance at 1298.40.
Stochastics read oversold in the XAUUSD, hinting at the potential for a short-term correction as the markets head into US lunch. A close below aforementioned 1.291.70 resistance would validate an in-term bearish bias, with an initial downside target of Tuesday support at 1287.31.
Bear in mind that the precious metal has been losing value versus the US dollar for the better part of three weeks. Wednesday’s action hints a potential medium term reversal, but a momentum shift would likely require another fundamental driver other than just the US employment miss. There are no real market movers scheduled for the remainder of Wednesday, so traders will look to Thursday’s schedule to potentially catalyze a longer term directional shift. The US will report initial jobless claims data, the trade balance figure, the ISM non-manufacturing employment figure and the ISM non-manufacturing PMI figure. A miss on any of these four headline releases will likely fuel gold buying, as investors seek to reduce their market exposure.
Keep an eye on the aforementioned 1298.40 as the week matures. A close above this level would likely be enough to redirect the 200 period SMA, and would suggest a trend reversal.
To contact the reporter of this story; Samuel Rae at Samuel@forexminute.com