Gold Technicals – 1,400 Broken, 1,420 Next

USD fell sharply yesterday due to the weaker than expected US Q1 GDP that was released yesterday, bringing Gold prices higher and advancing the bullish breakout from 1,400. After breaking above 1,400 earlier yesterday, price traded back towards 1,400 during European hours in typical pullback fashion.

There was a risk that 1,400 may be breached, hence invalidating the breakout that just happened and potentially allowing price to swing even more negatively to usher in a bearish breakout instead. With the post GDP announcement push, price has managed to clear the 23rd May swing high, and alleviated much doubts about faking out. However, bulls have basically exchanged one resistance for another, with price now being kept by 1,420 instead.

4 Hourly Chart

Stochastic indicator shows that bullish momentum is strong, with readings hitting the highest in May. Generally from a short-term perspective, momentum indicators may be a little too oversensitive, and hence even if readings hit Overbought, it may not necessary mean that short-term momentum has ended. However, if we pair the flattening stoch curve together with a reversal candlestick pattern at 1,420, then the case for a pullback becomes stronger.

Should price fail to break 1,420, 1,400 will open up once more, and the overall pattern from the short-term chart will remain bearish if we consider the decline that we’ve been in since 1st May. The quest to climb higher is slightly more difficult for bulls, with 1,440 being the next resistance after 1,420. Things get better should 1,440 is breached, with 1,480 opening up as a viable bullish target. However there are still resistances in the form of 1,460 and the descending trendline which may turn price lower especially if price continue ascension from here without any significant pullback.

Weekly Chart

Weekly Chart shows price heading towards the descending Channel once more. Overall outlook for Gold remains bearish, but bulls will be glad that previous week’s low failed to test the swing low from the initial channel breakout. Should price manage to break into the Channel, the bearish breakout will be invalidated and Channel Top will be a possible bullish target.

However even in such a bullish scenario, the possibility of bulls to break 1,530 without breaking channel Top is slim, and as such it is unlikely that the overall bearish tone can be shifted even in the most optimistic bullish scenario. This is in line with the overall fundamental narrative which sees ETF gold volume trading lower and lower.