Chapter 36 07/19 XAUUSD: Huge Downside May be Reopened as the Gold Price Tests a 2.5-month High
Abstract: During the New York session on Tuesday, the price of gold rose sharply and hit a 2.5-month high. This has attracted the interest of technology-based traders to continue to go long. The weaker-than-expected U.S. retail sales report in June boosted these expectations.
Fundamentals
The retail sales in the U.S. increased by 0.2% in June, which was lower than the market expectation of 0.5%.
Although retail sales in the U.S. failed to meet expectations in June, and despite the sharp increase in borrowing costs, spending remained flexible, which increased the positive signal of inflation easing. For those market observers seeking a soft landing of the U.S. economy, this report and the U.S. employment report released in June in early July seem timely, which may prompt the Fed to end the tightening cycle in the near future.
Recent economic data show that the U.S. economy is better than expected, and the market is happy that the U.S. will avoid a recession. If the U.S. or the global economy does not fall into recession, the global demand for metals will not improve. However, global economic growth is not strong enough to prompt major central banks to continue to tighten monetary policy and raise interest rates, which will curb the demand for commodities.
Undeniably, the strong inflationary pressure has cooled down, and it is widely expected that the Fed's further tightening policy will help stabilize inflation below the 2% target.
The clarity of the interest rate outlook has put pressure on the USD and boosted the demand for gold, but the increase may be limited because it is unlikely to start cutting interest rates in the near future.
Trading was relatively thin overnight, with Asian and European stocks mixed. The U.S. stock indexes are strong, and the bulls of major stock indexes are enjoying the upward trend of the full candlestick in the 1D timeframe, which also reflects the optimism of investors.
In August, gold futures prices hit a 2.5-month high. The bulls gained an overall technical advantage in the near future. In the 1D timeframe, the price is in a continuous three-week upward trend. The bulls' next target price is US$1,985, followed by US$1,993. Breaking through the latter will mean the end of the downward trend.
The next short-term target price of bears is the recent support (formerly served as resistance) at US$1,964, followed by US$1,946. If it falls below the latter, the downward trend will continue.
Technical Analysis
The price of gold has been on the rise since it fell slightly below the psychological threshold of US$1,900 at the end of June. With the sharp rise in the price of gold in recent days, the last line of defense of bears is US$1,985. We believe that the upside of bulls has ended.
Momentum indicators support the recent bullish trend. Specifically, RSI remains above the 70 overbought zone, while MACD gets stronger above the 0-axis. Considering that the bulls have completed the test of the supply zone and the price is very close to the upper limit of the Bollinger Band, it will be very difficult to go further, and it will be unwise to continue to go long.
If bulls continue to push up prices, a 2.5-month high of US$1,985 will be the first resistance. After breaking this level/range, the bulls will challenge US$1,993. If the price of gold continues to rise and hit a new multi-month high, it means that the downward trend from US$2,080 will end.
On the other hand, the bearish action will lead to the initial price test of 78.6% Fibonacci level of US$1,964. Even lower, before testing the 50.0% Fibonacci of US$1,937, attention may shift to the 61.8% Fibonacci of US$1,946. Further decline may stop at the 38.2% Fibonacci retracement of US$1,927.
Overall, the price of gold has been rising steadily since it fell slightly below the psychological threshold of US$1,900 at the end of June. As the gold price returns to the range height again, the momentum will continue to push the gold price to run at high levels for some time; The golden cross between the recent 50-week SMA and the 200-week SMA may become an additional driving force. However, since the price is close to the overbought condition, the possibility of a pullback should not be ruled out. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 1975
Target price: 1860
Stop loss: 2003
Deadline: 2023-08-02 23:55:00
Support: 1964, 1948, 1937, 1927
Resistance: 1985, 1993, 2000, 2004
