Technical analysis of XAUUSD
Gold moved up to a seven-year high last night as fears in stock markets increased. The uptick in covid-19 patients this week threatens to damage ongoing economic recovery: the USA recorded 45,500 new infections yesterday, the highest in a single day so far. The environment of zero or near-zero rates in most advanced economies also removes one of the usual cons of buying gold for investors in the deliverable metal. Today’s technical analysis of XAUUSD considers some area on the four-hour chart ahead of American GDP this afternoon.
The key resistance on this chart is the latest high around $1,780. One might conjecture that high resistance could be the psychological area of $1,800, slightly above the top of the chart. Low support appears to be the depth of the latest consolidation around $1,675. There will probably be several supports before this fairly distant area is tested, though.
Technical indicators on XAUUSD H4
Moving averages continue to print a strong buy signal, with each of the 50, 100 and 200 SMAs successively above each other. The 50 SMA from Bands completed a golden cross of the other two around the middle of last week. Each moving average will probably function as a support over the next week or so, but particular emphasis is on the 100 and 200 which are very close together.
Looking more closely at the shorter hourly chart, the current consolidation is testing the 50 SMA from Bands but so far without success. Support from moving averages in the short term is likely to be the 100 SMA around $1,756. Looking further ahead, the 200 SMA might bar a deep retracement around $1,740 or slightly higher.
There’s no indication of overbought anymore at the time of writing from either Bollinger Bands (50, 0, 2) or the slow stochastic (15, 5, 5). While both of these are very close to neutral in terms of saturation on the hourlies, here they remain close to overbought.
The decline in volume over the last few periods might be an early indication of consolidation. Technicians would typically expect a brief retracement in such an uptrend to be accompanied by a spike in buying volume as traders ‘buy the dips’. The absence of this and comparatively high selling volume during the retreat from the latest high suggest a longer consolidation.
Price action and Fibonacci
Recent price action has been a bit confused but overall might back up the picture of consolidation. The hammer last night GMT might be read in the context as indicating high selling demand balanced with continued interest in buying the dips. The downward engulfing pattern after yesterday’s high probably does not indicate ongoing losses, but of course fundamental events might change this idea later today or tomorrow.
The 61.8% zone from the daily Fibonacci fan (the lower yellow line) seems to be an important area of support. Several tests of this have failed in June so far. To the upside, the 50% is above $1,800 so could be another cap to gains if the psychological area doesn’t hold.
Key fundamental events
Final American GDP growth for Q1 2020 is due in a few hours at 12.30 GMT. This is a critically important release for XAUUSD. An upward revision from the second estimate’s -5% could be just what the bulls need. Equally, though, a worse figure than expected might drive a deeper retracement for gold.
Many traders will want to wait until the release and the accompanying durable goods for May before committing themselves; gold will probably be highly volatile this afternoon GMT. Tomorrow’s data on personal income and spending from the USA probably won’t be as important for gold but could still cause short-term movements and instability.
Technical analysis of XAUUSD: summary
Overall the technical picture for gold seems to support ongoing gains. The big question is when and to what extent. Traders’ typical behaviour in the context – waiting for price to go lower in an attempt to reduce risk and increase reward – might result in some time passing before the possibility of a new high being tested. Equally, this afternoon’s data might lead to a sharp change in the technical outlook if the figures are surprising in either direction.
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