It was another quiet and range-bound week in the Fx market, perhaps partly due to the summer holidays, but probably more so because of the” crossroads juncture” the market currently finds itself at. 

Namely, the Federal Reserve summons for a very important meeting next week. While no big announcements or decisions are typical for their July meetings, this one could be different as Chairman Powell will be in the hot seat with the markets demanding answers about inflation. The surging prices are already proving much more persistent than the Fed has forecasted. So the key focus for traders is how the Fed would react in the months ahead if inflation rates don’t come down on their own later this year.

The US dollar has reached a critical resistance area (i.e., the DXY dollar index), reflecting the state of the fundamentals. Namely, a big market reaction is likely next week, especially if Powell leans hawkish and hints at tightening as a measure to contain the higher than expected inflation.

That being said, the Fx market and precious metals will likely remain in their established ranges until the Fed meeting has passed and is behind us. Then, depending on what the Fed has said or hinted at, the dollar will either sell off or jump higher. Below, we are turning to a potential opportunity on gold (XAU/USD) based on this assumption.

As we said above, until the Fed meeting is behind us and the market has digested any news and impact from it, it’s better to stand aside in this market as it can be very easy to get chopped up by range-bound price action and potential fakeouts. In fact, it has already happened on gold today.

The initial look of the setup that we are considering was bearish, with a head and shoulders pattern coming into being. Just as of the moment of writing this, the price broke the neckline to the downside - effectively triggering the pattern from a purely technical analysis perspective. However, the move quickly backtracked and the price jumped, now trading back above the neckline. 

The potential head and shoulder pattern has been invalidated, and those who sold on the breakout are now either in the negative or have closed out at a loss.

So, with the head and shoulders technically cancelled, it remains for the formation to be viewed as a trading range. Support is seen at 1795 - 1800, while resistance is found toward the highs at 1830 - 1835. 

The S/R zones of the range are also strengthened by the 55, 200, and 100 day moving averages, which concur with the highs and lows of the range (blue, red and orange lines on the chart). Such a setup suggests that potential breakouts can lead to attractive and tradable continuation moves.

Given the preceding bearish trend here on the 4H chart (that large drop from June), the inclination is to look for bearish opportunities next week on a potential downside breakout of the range. However, as noted earlier, the price may climb to the 1835 resistance or higher before the turning point or the final high is reached.

Under the bearish scenario, gold can decline below the 1750 June low and toward the 1700 level. Keep in mind that the Fed will need to be hawkish for this to come about.

Wait for the Fed meeting and US GDP release next week before taking a trade. As we saw today, any breakout of the range before these events will have a high probability to turn into a fakeout. Wait out for the events and then watch the price action. 
 

Entry: 

• Look for short entries on bearish signals or patterns on a bearish breakout below the support of the range at the 1800 zone.

Stop: 

• The price should not return above 1800 once it has broken below.
• Still, to allow some breathing room for the trade, the stop can be placed above the mid-point of the range (around 1815-1820).

Targets:

• 1st - the 1750 low from June
• 2nd - 1700 area

• July 9, 2021 - Long EURCHF from 1.0850 (in progress)
• Long USDCHF hasn’t been triggered yet but is getting closer (trade idea sent on June 18)