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Market Analysis

Technical analysis of XAUUSD

October 16, 2019
BY Michael Stark

A look at the four-hour chart of gold against the dollar (XAUUSD) appears to show growing downward pressure over the past month or so. Looking at the longer timeframes, this is a fairly common reaction to the very strong gains the yellow metal made from around the end of May. As with many other instruments like the pound and the Kiwi dollar, fundamentals were key for gold over the summer.

Low support is fairly obvious here around 1458, the area where losses stopped at the beginning of October. The very acute angle of the reaction upward seems to suggest that this is a strong zone which would resist further testing. High resistance seems to occur around September’s high of 1534. It makes sense though for traders to watch the psychological area of 1500 over the next few weeks. Although this wasn’t a strong barrier last month, in October its testing has resulted in consistently lower momentum.

Technical indicators on XAUUSD H4

The usual 20 (from Bands), 50, 100 and 200 simple moving averages give a strong sell signal overall. Price is below every one of these MAs and they are ordered sequentially from price faster to slower. The last significant death cross came a fortnight ago as the 50 SMA crossed below the 100. We can point to the 200 SMA as a likely area of resistance given that price has failed to break significantly above it this month.

Bollinger Bands (20, 0, 2) have contracted somewhat since the large movements at the end of September and the beginning of October. This means that major pressure to the downside could be limited unless fundamental events drive significant selling. The presence of the upper deviation very close to the 50 and 100 SMAs though might suggest this area’s importance as a resistance.

Meanwhile the slow stochastic (15, 5, 5) does not give a clear signal. Yesterday’s big down candle did not result in oversold conditions according to this indicator. MACD (12, 30, 9) is also unclear with the histogram and signal lines nearly overlapping.

Price action and Fibonacci

The angle of the current consolidation is slightly obtuse, suggesting that buying interest has dissipated somewhat. Candles last night and this morning all have fairly small bodies, backing up this impression. Selling confirmation from price action could come from a close below 1472. However, unless this happens there are no very clear signals from patterns.

Fibonacci retracement here is based on the large downward movement in the last ten days of September. The extension is this plus the upward reaction at the start of October. The 61.8% extension is the most important area from Fibo given that it occurs only slightly below last week’s low. A breakout below this could see the bulls losing control, if only temporarily. The 50% retracement is also significant because it overlaps with the 50 and 100 SMAs plus the upper deviation of Bands. Further up, the 61.8% retracement close to the 200 SMAs might also be important.

Key data points

American retail sales for September is a crucial item of regular data for gold-dollar. Due out at 12.30 GMT this afternoon, the figure could give fuel to more losses if the consensus for a decline turns out to be accurate.

Although not strictly data, Brexit has been very important for gold in most of its pairs this month. A sudden unexpected breakthrough in the current negotiations between the UK and EU would be a major negative for the price of gold. Equally, a collapse in the talks (which might be slightly more likely) could spur gold to new heights.

Technical analysis XAUUSD: summary

The technical picture for gold-dollar overall suggests that this symbol could make more losses over the next few days. News of Brexit talks though might alter this outlook significantly, so traders should be careful to avoid overexposure.

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