فصل 35 06/21 XAUUSD: Go Short at the Highs with the Ongoing Liquidation of Long Positions
Abstract: The Federal Reserve did not raise interest rates at its latest meeting, which caused the USD to fall below 103.00. However, the price of gold has not received much support due to the increased possibility of the Fed remaining hawkish.
Fundamentals
Last month, the price of gold fluctuated in the range of US$1,940-1,980 most of the time, and it also briefly exceeded this range several times. After a long period of stalemate, investors are now on high alert in the face of greater breakthroughs.
At present, higher bond yields may become a catalyst to break through this situation, depending on how investors deal with the rising inflation rate more broadly, such as the British inflation data released earlier. So, is this a sign of a deeper problem in the global fight against inflation, or is it a problem unique to the UK? The decline after the release shows concern about the former.
On Tuesday, as the 10-year U.S. Treasury yields rose slightly, the momentum of gold prices continued to slow down. Investors have been liquidating gold ETF holdings in June. Tactical long positions have also declined. Despite this, the U.S.'s recession risk has increased, and the yield curve has been inverted to a multi-year low. This kind of risk will still guide the funds to reinvest in gold in the short term.
It is true that after a mixed start in June, the price of gold continued to enter a good downward trend. Short-term technical adjustment is unlikely to break this momentum. The current sell-off looks more like a short-term technical liquidation.
We expect the selling pressure to increase after falling below the 200-week and 50-week SMAs. However, short-term bears enter the oversold zone, and it is still possible to rebound and test the US$1,950 range.
Technical Analysis
After hitting an all-time high of US$2,079 in early May, the price of gold showed a sharp correction, and continued to fall after falling below the psychological threshold of US$2,000 and the 50-day SMA. Although the price of gold has been fluctuating in a narrow range in the past month, the formation of a falling structure at a lower high point suggests that the technicals are deteriorating.
Momentum indicators now indicate a downside bias for near-term risks. Specifically, the stochastic oscillator is set for a bearish crossover, while the RSI has continued to diverge downward below its neutral threshold of 50.
If the recent bearish structure continues, prices could initially fall below yesterday's low of US$1,924. If momentum continues to deteriorate, the focus immediately shifts to the US$1,860 range before testing the 2023 bottom at US$1,804.
Or, if the price can break above US$1,950, the focus will once again turn to the watershed of US$1,964 at the upper limit of the recent range. Any further upside will stop at $1,970. Otherwise, it will weaken the recent bearish momentum.
Overall, gold prices have been directionless over the past month, but short-term oscillators are tilting in a bearish direction. Therefore, failure to break the downtrend line could trigger a sharp price retreat. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 1950
Target price: 1909
Stop loss: 1994
Deadline: 2023-07-05 23:55:00
Support: 1920, 1909, 1890
Resistance: 1940, 1954, 1964
