The gold price jumped 2.0% on Monday, a move followed by a spike to $1980 on Tuesday which could however prove to be the flash that gives way to profit-taking. Analyst and technical forecaster Richard Perry at Hantec Markets says a reversal is increasingly likely.
Throughout the bull moves of 2020 on gold, almost all have culminated in an intraday bull failure and an exhaustion candle on the daily chart.
So, with the daily RSI at 85 (massively stretched now) and coming into the European session with a potential “shooting star” candlestick, the potential for a reversal is growing.
Hitting a high of $1980 early this morning, the market has already unwound $40. We have been looking for potential reversal signals on the hourly chart for a few days, but none have been confirmed.
However, the warning signs are there again, as a negative divergence on the hourly RSI has formed, but also with the hourly RSI dropping now to its lowest in over a week. The support at $1930 held very well throughout yesterday’s session and will be an important near term gauge.
There is also an uptrend of the past week on the hourly chart coming in at $1928 this morning. Already, we are seeing this early pullback has broken the 21 hour moving average (which has been a very good basis of support for the past six sessions of this bull run. A decisive breach of $1930 support would open $1898 as the next near term pivot.
Given how overbought this move has become, the potential for a retracement is certainly elevated. Completing a shooting star candlestick today would add to that near term corrective potential.
Selling pressure on the dollar has been a huge factor across major markets in recent sessions.
However, with month-end, a Fed meeting and subtle shifts in the COVID outlook, is this move about to see a retracement and a near term dollar rally?
There are signs that perhaps the increase in US COVID infections may be flattening off, we are beginning to see rates pick up across the Eurozone once more.
Could this subtle shift be enough to take focus away from the perception of US economic underperformance?
The FOMC begins its two day meeting today and the July meeting contains no projections and traders will be wondering where the dovish surprise could come from that would drive renewed selling pressure.
Furthermore, can Congress come to an agreement on the latest round of US fiscal stimulus?
The paycheque support from the CARES Act expires this week and Congress will be eager to see a replacement agreed.
As this all comes together, it is interesting to see some of these extremely overbought markets threatening to pull back this morning.
Gold is -$40 off its overnight high of $1980, whilst EUR/USD, USD/JPY and Cable are all back from their extremes too.
Is this a moment where profits are taken? Month-end positioning also becomes a factor too as the week develops.