Technical analysis of XAU-USD
Gold-dollar (XAU–USD) has retreated sharply this week from recent highs. Panic over the coronavirus’ spread caused selloffs in many markets yesterday, another ‘Black Monday’ as even traditional havens like gold were sold.
Technical indicators on XAU-USD H4
Moving averages have generally yet to react to the recent selloff, so they do not currently provide a clear signal. The 50 SMA from Bands death crossed the 100 yesterday in the early morning GMT, but the 200 SMA remains below both. The completion of a death cross of the 50 and 200 SMAs as well would usually be taken as a fairly strong sell signal. This signal should be awaited after the completion of the next five to six periods.
Bollinger Bands (50, 0, 2) have expanded dramatically since the second half of last week. This means that volatility is likely to remain very high over the next few days. Price has now moved out of oversold. The slow stochastic (15, 5, 5) reads 29 at the time of writing and the current candle is also slightly inside the lower deviation of Bands. Higher volume since last week might suggest that the current movement has lasting strength but could pause or retrace soon.
Price action and Fibonacci
The very strong bounce from around $1,455 yesterday morning GMT could suggest that this is an area of support. On the other hand, it might simply be a short-term reaction to excessive supply or indeed demand from long-term buyers to enter at an advantageous price. The fairly long wicks of subsequent candles suggest that buying demand remains high within the current area.
The Fibonacci fan here has been drawn based on the overall downward movement since the very beginning of last week. The first key area to the upside is the 38.2%, but the 50% would probably be stronger. Conservative traders looking to sell around a retracement might enter near these zones while being aware of volatility.
Technical analysis XAU-USD: summary
The overall impression from TA is that gold-dollar could continue to make losses over the next few periods. For all but the most aggressive traders, though, the current area is unlikely to be a suitable entry for selling. Panic in stock and other markets, general volatility and actions by central banks are likely to remain in greater focus than TA for some time.
In particular, note that CME’s FedWatch Tool is based on scenarios around scheduled meetings of the Fed. This means that its reliability in the immediate aftermath of Sunday’s emergency move plus the unscheduled cut on 3 March will probably be much lower. FedWatch should be used only with considerable caution this week.
Traders should also remember what happened in 2008. The initial reaction of many governments was to sell their reserves of gold, driving prices sharply downward, but demand for havens soon afterwards caused prices to soar. One should be aware of the possibility of a similar scenario in the current situation.
If you’re a new trader, it’s a good idea especially now to practise with a demo account before you trade for real under these conditions. Demo accounts use simulated money, so you can test and refine your strategy without the risk of losing actual money.