Gold supported

It’s been a frustrating few months for FX traders as currencies remain encapsulated within well defined ranges. As highlighted by JP Morgan, the EURUSD is trading within a 6-month range that is “nearly the tightest on record at below 3.5%”.

After mustering the courage to attempt a break higher yesterday, the AUDUSD found the .7140/50 resistance zone too much. The subsequent rejection left a Doji candle on the daily chart, which may provide a degree of comfort to the owners of a reasonably large short AUDUSD position, currently in the market. At the very least, the overnight rejection is a setback to the potentially bullish AUDUSD scenario, outlined yesterday.

Elsewhere, the rally in gold continued overnight prompted by recent reports that both Russia and China have continued to buy gold, adding aggressively to their reserves to diversify away from American assets. Both countries have been vocal critics of the status that the U.S. dollar enjoys as a global/reserve currency.

From a technical point of view, I share the same bullish bias that the Russians and Chinese hold towards gold. However, whereas the Russian and Chinese authorities are likely to share long-term investment objectives for the precious metal, I am looking at buying gold as a trade, rather than as an investment.

As per the chart below, after completing a Wave III high at $1346.74, gold commenced a corrective Wave IV pullback. The ideal target for the Wave IV pullback, was the $1260/50 area which included wave equality (where wave a = wave c) and the 50% Fibonacci retracement of the rally from the August 2018 $1160.32 low, up to the February 2019, $1346.74 high.

However, after holding and bouncing from $1280 last week, there is grounds to suggest that gold competed the Wave IV low, at a higher price than anticipated and that it has now commenced Wave V higher, towards $1360/80.  

As such, we are currently biased to buy dips in gold, with a stop loss placed at $1274.50, well below the recent $1280 double low. A break and daily close above the downtrend resistance ~ $1313, would provide further confidence that the Wave V rally is underway.

Source Tradingview. The figures stated are as of the 10th of April 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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