Gold Technicals – Bearish Pennant Forming

Gold prices continued to trade lower following last week’s bearish rejection confirmation. However despite the sell off on Monday Asian hours, price has pulled back significantly, with the resulting tail forming a Triangle. This Triangle under current larger price action of a breakout context gives us a bearish Pennant, which would generally lead to a bearish extension.

Weekly Chart

Stochastic readings kind of agree with Stoch line looking likely to cross Signal line from the top. Looking at previous interim peaks, it is clear that there is a divergence between price and stoch direction, suggesting that current pullback is considered too fast and too furious, and even if current price action is the on-start of a bullish reversal, a bearish correction would be likely.

However, it is important to note that the Pennant is considered rather small. Most pennants should be formed close to 10 candles and not current 4. Furthermore, the 3rd touch point of the triangle bottom is using current candle, which makes it even more unreliable. Based on this, it will be prudent to call the pennant incomplete. Nonetheless, this is not a negation of current bearish outlook. Even without the pennant, price would still be bearish based on the bearish rejection pattern described yesterday.

Hourly Chart

From a short-term perspective, price is still putting lower highs, and recent price action suggest that a new top is forming with 1,438 preventing price from heading lower. A move below 1,438 will open up 1,428 and the swing low of last Friday around 1,420. Should 1,438 hold, the move toward 1,450 would be possible but price will need to break back towards 1,465 in order to eliminate current short-term bearish pressure.

Also, traders who are interested in other currencies may wish to see if Gold prices have further impact on USD broad strength as discussed in our earlier analysis of USD/JPY. Previously Gold prices were pulled lower due to the increase in USD strength brought about by stronger US stocks. Now it appears that Gold may be influencing USD, and not the other way round, similar to the USD/JPY, Nikkei 225 relationship.

More Links:
AUD/USD – Continues to Drift Lower to 0.9940
EUR/USD – Consolidates Just Below 1.30
GBP/USD – Claws Back Some Ground to Above 1.53

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