Gold's four-week winning streak and the near 90-degree rally from the September low of EUR 1,012 is showing signs of exhaustion near key resistance.
As of writing, XAU/EUR is trading largely unchanged on the week at EUR 1,160 per Oz, having clocked a high of EUR 1,166 – a level last seen in
May 2017 – and a low of EUR 1,153 earlier this week.
What it means is that the current weekly candle is taking shape of a doji, which is often considered a sign of indecision. That doji, however, could be considered a sign of bullish exhaustion, given the metal has rallied sharply in the last 4.5 months.
More importantly, the signs of bullish exhaustion have emerged at the resistance of the trendline connecting July 2016 and April 2017 highs and at a time when the metal, according to 14-week RSI, is looking most overbought since July 2015.
Indeed, that indicator was reporting overbought on Jan. 30 when metal was trading at EUR 1,148. The bulls, however, ignored the weekly RSI and pushed the metal higher, as Fed's Powell turned dovish by signaling patience on rate hikes and willingness to adjust the quantitative tightening program (balance sheet unwinding) if required.
This time, however, the combination of bull exhaustion at the crucial trendline hurdle and extreme overbought readings on the RSI could yield a pullback, as the Fed's dovish turn has been priced in and investors are again warming up to risk assets, courtesy of easing US-China trade tensions.
As a result, XAU/EUR could pullback, possibly to ascending 10-week moving average (MA) in the next few days. The 10-week MA, currently located at EUR 1,131, is seen rising to EUR 1,138.
Acceptance below the 10-week MA would abort the bullish view and could be considered an advance indicator of an impending bullish reversal in EUR pairs.
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