Hello there Traders,
Hope you all had a great weekend and welcome to today’s article on XAUUSD. Upon recommendation of Charles who sent us a message through our Facebook page, we will be revisiting the Golden commodity. Thank you Charles for your feedback and let us know what your analysis is in the comment section down below! Thanks again!
It was a more than month ago since we last reviewed Gold. In our articles of January and February we were keeping a keen eye out on XAUUSD as we expected a huge move down. That indeed materialized as our regular readers know very well: a fall from 1690 to 1555 was a great trade.
Not too much has happened in the meantime. When looking at the 4 hour and day chart, Gold has been correcting itself slowly but surely to the upside bouncing of the $1,555 target and hitting temporary resistance at the $1,615 price level.
When a correction is so slow and tedious, that is actually when a trader’s awareness should be increasing! A trade opportunity might be around the corner…
The market always moves in cycles of trending and ranging modes. Traders want to trade the trending modes. But these moves are relatively short time period and account for only 15-30% of the market movement. Basically, corrections and sideways moves dominant the market.
To get a proficient grasp on these concepts, please read more Forex advice in these great FX articles on trading impulses and interpreting break outs of consolidation periods: 1) trading breakouts real or false and 2) simple Forex trading impulsive moves. These are a must / essential Forex training for any FX trader.
So how does that information to XAUSD’s currency situation? Here is a summary:
- Now that a substantial corrective period has taken place, the chances of an impulsive move are increasing.
- No, it does not have to occur immediately. But…
- Our trading awareness should increase and the pair should definitely be put on our watch list.
- Basically, the currency has the space and opportunity to move impulsively…
Now that we have an idea and a good reason to expect an impulse to occur sometime soon, we need to answer some other important questions as well:
- To which direction will the impulse happen?
- At what levels will the impulse most likely occur?
- To what levels could the currency continue before it resumes yet another consolidation period?
Before we do this, lets zoom out to the week chart.
Review week chart
The uptrend on XAUUSD was of course huge and lengthy. Within 3 years Gold more than doubled in value from $700 in November 2008 to $1,900 in August 2011. The support trend line gave a great indication of this uptrend.
After the last spike up in the summer of 2011, the commodity has settled in a sideways range ever since. The support trend line broke a year ago and the uptrend has been replaced by a sideways range.
If we zoom into more recent price action, then we are able to detect a range with 5 touches on the bottom and 3 touches on the tops. The range looks well built and strong.
So the questions arise:
- Will the currency keep ranging?
- Will the currency break?
- And if so, to which side?
The currency could in fact break to both sides.
1) Gold was in a huge uptrend so a continuation of the trend is a possibility.
2) Then again, if we examine the correction more carefully, we can see that the first correction to the downside had a lot of force and momentum as well.
- After that there is a triangle visible with 5 waves (a,b,c,d,e) completed.
- Could XAUUSD be ready for a break to the downside?
- The week chart will no provide us that answer until we break out of the range.
In any case, we are at a talking point. Will XAUUSD bounce back to the top of the range or will we see break of the range to the downside? Let us continue with the analysis to figure out how to trade XAUUSD. For that, we must zoom into lower charts to identify areas of confluence that are worth trading.
The day chart shows us the clear downtrend with lower highs and lower lows. The commodity has bounced up twice making double bottom just recently.
The down trend channel is a key factor. As long as price remains in the day down trend channel, we should realize that a move down back to the bottom of the weekly wedge for either triple bottom or a break of the wedge is a strong likelihood.
There are extra resistance levels at the dark red lines which are drawn at previous bottoms and support places, which should now act as as resistance.
If we place a Fib on the down move, then we can also see 500 and 618 Fib confluences at those levels.
4 hour chart
The 4 hour chart is showing a very shallow corrective type of an uptrend. This upward channel will sooner or later bump into the bigger downtrend channel on the day chart.
The maximum correction I expect on this chart is a move up to the red box where there was a clear sell off from these levels. At that point in time the commodity halted for a small pause after an impulsive down move, but it quickly continued its downward path of a very timid sideways correction.
Here are the potential Forex trade setup opportunities which I am able to detect:
1) Any break of the lower trend line of the 4 hour corrective up trend channel and the last 4 hour support level (horizontal red line) and hook back to that broken support level would be a great short trade, with a Stop Loss above the turning spot;
2) A candle stick reversal pattern at the 500 fib at +/-$1,626 with a SL above the candle stick;
3) A direct entry at the 618 Fib at +/-$1,643 with a SL above the red box levels ($1,654).
The targets are:
a) Day support line at $1,570;
b) Day triple bottom at +/- $1,555-$1,560;
c) A break of the day support back to weekly bottom at the -0.272 target at $1,520;
d) A break of the weekly support to -0.618 target at $1,475 and lower.
The entire down trade setup is invalidated once the down trend line is broken. At that point a new analysis is needed to reevaluate whether the break is passive and temporary and maybe just a small false break out. In that case the down trend could still be in force and continue. Or is the break out real and strong and can we expect a shift in gears. In that case the commodity would have plenty of space back to the top of the weekly range and we can catch great trades in there.
Thanks for taking time to read this article. It is much appreciated.
If you would like to see a commodity or currencies being analyzed just like the one here above, please do not hesitate to write a comment down below.
Also if you want to add anything to the above, we are all ears!
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