Technical analysis of XAUUSD
Gold sold off very sharply yesterday morning as sentiment suddenly flipped back towards ‘risk on’ in most markets. The election of Joe Biden as president of the USA also provided more certainty for investors and traders, a negative fundamental factor for gold. Today’s technical analysis of XAUUSD looks at the four-hour chart.
The high and low areas of importance on this chart are the limits of the latest dramatic movement downward, namely around $1,965 at the top and $1,850 below. The former area is fairly distant though so moving averages are likely to be more important as resistances over the next few days.
Technical indicators on XAUUSD H4
Moving averages are somewhat mixed at the time of writing, with all three of the 50, 100 and 200 SMAs bunched close together although they remain above price this morning GMT. The initial target of an upward movement would be the 200 SMA which coincides with the important psychological zone of $1,900.
Price has now moved out of oversold based on the slow stochastic (15, 5, 5) although this has yet to complete a crossover of the signal line. Bollinger Bands (50, 0, 2) have not displayed an oversold signal at all in the aftermath of yesterday’s large drop. The great spike in buying volume from noon GMT yesterday suggests high demand to ‘buy the dips’.
Price action and Fibonacci
The enormous down candle from 8.00 GMT yesterday combined with much larger Bands suggests very high volatility over the next few days. However, the fairly strong bounce so far from the low equally implies that the selloff yesterday was excessive. As price approaches $1,900, action around this area is likely to be key in determining possibilities for ongoing direction beyond the second half of this week.
Movement below the 61.8% zone of the daily Fibonacci fan has reestablished the significance of these lines. This upper area of the fan coincides quite closely with both the bunch of the three moving averages and the important psychological area of $1,900, so we’re probably looking at a key resistance only slightly above the current price. To the downside, the 50% zone of the fan might be expected to cap another bout of losses in the short term at least.
Futures on gold
The chart itself of futures on gold (COMEX, continuous with current contract at front) displays a similar picture to that of the spot CFD on gold-dollar. Volume here though is basically the opposite, with the plunge yesterday having been accompanied by very high selling volume. Buying has been limited in the aftermath. This might suggest more losses for gold this week, but such a signal from futures should probably not be acted on in isolation by traders of CFDs.
Annual futures on gold
Futures on gold in the longer term have mostly priced in the latest drop although volume for next year’s contracts remains very low. December’s contract has bounced fairly strongly from yesterday’s lows, as has February’s, the only other month with significant volume.
Despite the low volume, an annual contango of slightly more than 1% is a fairly normal situation. This calls into question the sell signal from the chart of futures and suggests that ‘wait and see’ is the name of the game among many traders.
Technical analysis of XAUUSD: summary
TA suggests in the main that volatility for gold is likely to be much higher this week compared with what has been customer in Q4 so far. Ongoing direction is unclear, as evidenced by participants’ reluctance to commit, but a channel downward seems to be a possible scenario in the near future.
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