Gold Makes a Surprising Start to the Week

For a week that is filled with potentially highly volatile news, including the UK elections, gold is positioned in a very curious way.

Figure 1: XAUUSD Weekly is in a Consolidation

XAUUSD

The first thing worth noting is that the weekly chart is in consolidation, and that price has just risen to touch the declining line of resistance. Even though this may not result in a large move down, there is a high probability that after three positive weeks, the top of the triangle will provide sufficient resistance to create a tradeable reaction.

This is curious because it will have the trader short gold during a week when uncertainty is likely to increase. Nonetheless, it is still early, and thus it would make sense for traders to saddle themselves into positions that could end up going very well if this week turns out to be a down one for XAUUSD. Naturally, it would make more sense to track this on the lower timeframes.

We can turn to the daily chart to plot a reasonable zone of attack for the trade setup, as shown in Figure 2. After correlating several different trading techniques, the ideal resistance Blue Box turns up as 1282.49-1296.13. Price is already extremely close to that region. However, waiting for a trigger on the daily chart would likely require a reversal of momentum that would take until the end of the week, unless traders used candlestick reversal patterns such as haramis or engulfing patterns.

Figure 2: XAUUSD Daily Chart

XAUUSD

Because it is more likely that the trade will be over quickly if risk aversion takes hold again, it seems more likely that traders are better off observing the four-hourly chart for potential entries.

Figure 3: XAUUSD Four-Hourly Chart Entry

XAUUSD

Reasonable price triggers for the four-hourly chart would involve fake trend continuation entries into the marked Blue Box. Traders might look for patterns such as reversal divergence, candlestick patterns and stochastic (8,2,2) crosses followed by a candlestick breakout.

RISK DISCLOSURE: Trading foreign exchange (FX) and contracts for difference (CFD) on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in FX or CFDs you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with leveraged trading and seek advice from an independent financial advisor if you have any doubts.