Gold traded inside day on Friday, with a high of 2,581 and a low of 2,554. That range is contained with the price range from Thursday. Today’s price action represents a rest following the successful test of support yesterday. Yesterday ended with a bullish hammer candlestick pattern. However, the pattern needs a trigger to be valid and that would happen on a rally above Thursday’s high of 2,581.
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Support Holds Around Prior High
Support was seen yesterday around prior resistance at the August high of 2,532 and a 50% retracement level at 2,534. Also, notice that an extended bottom channel line from a prior bull flag formation also identifies possible support around yesterday’s lows. So, there is some technical evidence pointing to a possible bottom that could at least lead to a bounce. But first an advance above yesterday’s high is needed.
Breakdown of Rising Channel May Take Time to Recover
The current correction did some technical damage on the way down that may need a little time to be fully resolved. There was a decisive decline below the 50-Day MA, internal uptrend line, and a prior daily swing low that is also a monthly low. It was the first time in nine months that a prior monthly low had been broken to the downside. Moreover, the drop through the trendline triggered a breakdown of a rising parallel trend channel.
The channel represented some degree of symmetry and now that symmetry has been broken. It also improves the chance that gold may eventually test support around the lower rising uptrend line. That would be a natural progression of price following such a clear channel break. The price represented by the line would depend on when it was reached.
Bullish Reversal Above 2,619
A bullish reversal from yesterday’s lows has gold heading up into potential resistance at the prior swing low of 2,600, then Thursday’s high at 2,619. Thursday’s high can be used as a rough proxy for the trendline price for now. Then there is the 50-Day MA at 2,652, currently. Given the potential significance of the breakdowns, it would not be surprising to see a rally into resistance, to be followed by a drop that tests the week’s lows and possibly breaks below it. That scenario may start to change on a daily close above the 50-Day MA.
Source: Fxempire
