Gold has been bullish since the October low around 1183. Here are a few observations in the 1H chart.
1) A rising channel is forming and price action to start the week has respected the rising channel support pushing price to a new high on the month around 1235 during the 10/13 Asian session.
2) The 200-, 100-, and 50-hour simple moving averages (SMAs) have shifted into bullish alignment, are sloping up.
3) Price has crossed over the SMAs, and the last 2-3 sessions of price action is using them as support. This is call a bullish “slingshot” signal suggesting further bullish outlook.
4) The 1H RSI has tagged 70, and then held above 40 for the most part, showing growth of the bullish momentum in October so far.
Gold (XAU/USD) 1H Chart 10/13
Now, when we look at the 4H chart we will see that this rising channel created over the past week can be interpreted as a flag pattern in the bigger picture where gold has been bearish since July’s high at about 1345.
Gold (XAU/USD) 4H Chart 10/13
Bearish Continuation Scenario:
With this prevailing downtrend in mind, we should be prepared for the bearish continuation scenario. As price rises to 1235 or up to 1240, we see that it will be testing a combination of the 200-period SMA in the 4H chart,and a previous resistance. With the RSI in the 4H chart approaching overbought levels, we can expect some resistance here entering the 10/13 European session. A break below a local pivot at 1225.50 could break below the flat pattern as well and could be a bearish continuation signal.
The first key support area to challenge this bearish continuation scenario would be around 1205-1210, an area of common lows seen in the 4H chart. A break below this support area would also clear below the 100-, and 50-period SMAs providing further clues of bearish continuation, especially if the 4H RSI also breaks below 40.
Gold (XAU/USD) Daily Chart 10/13
The daily chart shows price action outside of the short-term rising channel/flag pattern. In this perspective we see price trying to break a falling speedline from August. We can also see that 1240 is reinforced as a resistance by a previous support pivot in June. We can also see that a break above 1240 will expose upside risk toward the 1270-1280 area, where we see a falling trendline from July, the middle of a cluster of 200-, 100-, and 50-day SMAs, as well as common support area.
In conclusion, we should anticipate further upside in the short-term because of the bullish channel, but if gold falls below 1225, we should be prepared for the bearish continuation scenario as well.
Otherwise, if the bullish scenario does persist this week, limit the outlook to 1270, where we should look for sellers, especially if the daily RSI is around 60. Another bearish continuation attempt can be expected from this area.
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