Free Profitable Forex Newsletter
Hey! This is Philip with this week's trade idea of the Free Profitable Forex Newsletter!
The Yellow metal may be in for a reality check soon after the relentless rally since the autumn of 2018. The substantial rally has led the price of Gold to overbought levels, which could be the culprit of a potential correction to the downside from here.
Gold At Overbough Levels Combined With A USD Rebound And Return Of Risk Appetite Could Start Off A Correction From Here
Luckily, we are seeing the first signs of the coronavirus fears abating this week on reports that a drug has been found that helps in fighting the virus. Furthermore, the infection rate has started to flatten out, which could mean that the authorities are starting to control the outbreak. Although, however, additional evidence for that will be needed in the following days. Nonetheless, risky assets and currencies are up on this
piece of “good” news so far this week, and that is also hurting Gold.
Add to that another positive for risky assets, which is the fact that further escalation between the US and Iran has been avoided so far (this issue took Gold to its 7-year highs in January).
Data released from the US this week is so far robust and even surprised positively. The ISM Manufacturing PMI (Monday), the ISM Services PMI (Today), and also the ADP Non-Farm employment change report were all stronger than expectations. All of this indicates that Friday’s Non-Farm Payrolls and other employment reports are likely to be strong also. If they are, then that will further play in favor of the Dollar against
Gold (in the sense that Gold is priced in Dollars - XAU/USD) and could lead to a breakout of key support in XAUUSD (See Technical Analysis below).
To conclude, these developments of sentiment turning bullish on risk appetite and a stronger Dollar combined with the overbought levels in Gold suggests that there is ample scope for a correction to the downside.
While it is clear that the trend is strongly bullish here, at the same time, prices are at stretched overbought levels. And, that means a correction - potentially sharp - can occur at this point. Gold is overbought on both the monthly and weekly timeframes as per the RSI indicator, while it only recently exited overbought levels on the daily timeframe.
Additionally, the $1600 area is important monthly resistance due to several factors, among else a big 61.8% Fib retracement from the 2011 - 2015 downtrend as well as prior monthly lows in this area. The resistance trendline of the rising channel is also nearby.
The decline this week (assuming Gold closes near current levels ($1555) or lower) would be the largest weekly decline in 12 weeks. This may mark the start of a deeper retracement. For a stronger conviction on that, however, Gold would need to break below the $1550 support zone (see chart below). Such a bearish breakout would open the way toward the prior lows around $1450.
Wait for a convincing bearish breakout of the $1550 support area, and then target moves toward the $1500 price (as a 1st target) and toward the loose area around $1450 (as the next target).
- Wait for a bearish breakout of the $1550 support;
- Preferably enter on a confirmed breakout of this support zone
Stop loss:
- Aim for a relatively tight stop;
- Gold shouldn’t return above $1570 - $1580 after a confirmed bearish breakout has occurred, so these levels may be good appropriate as stops in such a scenario
Target:
- 1st - $1500 area - it is an important support on the daily timeframe
- 2nd - $1450 area near the prior weekly lows
Note: As stated above, the long-term trend of Gold remains bullish, and much more will be needed for that to reverse. But, from a short-term sentiment perspective, tactical short trades may be good opportunities to score profits in the next few weeks (assuming risk appetite sentiment stays strong, of course).
Trade signals from the past week
- January 22, 2020 – Short USDJPY from 109.90, exit at 108.90 (on bounce before 1st target) = +100 pips profit
- January 29, 2020 – Short GBPUSD on a breakout below 1.30, not triggered - setup canceled
TOTAL: +100 pips in the past week
TOTAL: +2550 pips profit since October 1, 2018
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Any opinions, news, research, predictions, analyses, prices or other information contained in this newsletter is provided as general market commentary and does not constitute investment advice. FX Trading Revolution will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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