Gold broke below important supports, opening the way to the south. But have the bulls finished fighting yet?
Briefly: no positions are justified from the risk/reward point of view.
The U.S. Dollar – The Current Outlook
Looking at the daily chart, we see that the U.S. currency closed yesterday’s session above the 50-day moving average and the short-term red declining resistance line based on the previous peaks.
Thanks to this move, the greenback also finished the day above the upper line of the orange consolidation, which opened the way to (at least) 105,10, where the size of the upward move would correspond to the height of this formation.
Did the U.S. dollar soar earlier today?
Not really.
Why?
It seems that the resistance which you could read about in yesterday’s Gold Price Analysis encouraged the bears to show their claws.
As a reminder:
(…) not far from current level, the buyers will have to face the 38.2% Fibonacci retracement, which will verify their strength and willingness to fight for higher levels.
From today’s point of view, we see that the greenback turned back to the south, which suggest that we’ll likely see a verification of yesterday’s breakout above all the mentioned earlier resistances: the short-term red declining resistance line, the upper line of the orange consolidation and the 50-day moving average (at the moment of writing these words the U.S. currency is trading under its level) in the following hours.
What are the scenarios?
If the bulls win there, we’ll see a comeback to the north, the way to the above-mentioned 105,10 (where the size of the upward move would correspond to the height of the orange consolidation) or even 105.38-105.46 (the resistance area based on May 14 peak and the 61.8% Fibonacci retracement) will likely be open.
On the other hand, if the buyers fail to maintain the greenback above these important levels and the bears close the day below them, we’ll likely see a comeback to (at least) the lower line of the orange consolidation (104.28).
What impact can individual scenarios have on the gold price?
Just like yesterday, before I answer this question, let's check what consequences the above-mentioned pullback had for the yellow metal so far.
Technical Picture of Gold
The first thing that catches the eye on the daily chart is yesterday’s bearish candle, which not only closed the green gap ($2,417.40-$2,423.15) from Monday but also caused an invalidation of the earlier breakout above the upper border of the upper border of the purple rising trend channel.
These negative developments, in combination with the sell signals generated by the indicators, triggered further deterioration earlier today.
As you see on the above chart, gold futures started the day with another red gap ($2,383.20-$2,392.90), which accelerated further deterioration in the following hours.
Thanks to the bears attack, the price also dropped under the lower border of the orange consolidation marked on the 4-hour chart below, initiating the implementation of the pro-declining scenario that premium readers could read about in yesterday’s Quick Gold Alert:
(…) Bearish scenario
If the U.S. currency closes the day above the mentioned resistances (the red declining resistance line, the 50-day moving average and the upper line of the orange consolidation) and the gold bears manage to finish the day below the mentioned important supports (the green gap, the upper border of the purple rising trend channel and the lower border of the orange consolidation seen on the 4-hour chart), we’ll likely see further deterioration and (at least) a test of the 38.2% Fibonacci retracement based on the entire May upward move and marked on the 4-hour chart (around $2,388.55), which is currently slightly above the lower border of the very short-term green rising trend channel also marked on the 4-hour chart (at around $2,380).
At this point, it is also worth noting that the mentioned line currently intersects the support area created by the May 16 and May 17 intraday lows ($2,376.05-$2,381.30).
What could happen if these supports are broken?
The way to the 50% Fibonacci retracement and the bottom of the correction that we saw on May 15 ($2,357.25-$2,368.73(…) could be open.
From today’s point of view, we see that the situation developed in line with the above-mentioned assumptions and gold futures reached the targets earlier today.
As you see, the sellers broke below the 38.2% Fibonacci retracement and the lower border of the very short-term green rising trend channel, which triggered a test of the next support area.
What’s next?
Considering the current situation in the U.S. currency, the above-mentioned support zone and the current position of the 4-hour indicators (they slipped to their oversold areas, implying that buy signals may be just around the corner), it seems that a rebound from current levels may be just around the corner.
Summing up, yesterday’s session brought important short-term technical changes in gold, which triggered pro-bearish scenario and a decline to the predicted targets earlier today. However, taking into account the current levels in gold futures and the greenback, it seems that verification of the breakouts and breakdowns may be just around the corner.
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See you tomorrow.
Anna Radomska