Further short-term weakness for gold but USD/CHF likely to strengthen
I have been a gold bull all year as you know, but recently I pointed out how gold had run into some significant longer-term resistance from the one-year upward-sloping trendline and the blue 100-month moving average that you can see in the chart below. My latest analysis backs up this short-term negative view.
April’s red doji candle formation only helps to reinforce the likelihood of a medium-term top for gold, after we halted at that important resistance level. You can see that the 23.6% Fibonacci resistance is at 1252 and we have failed to close above this level on a monthly basis.
If we zoom in a little to the weekly chart we can see a more sideways pattern as we consolidate those strong gains seen in January and the early part of February.
I say consolidate because this does look like a medium-term sideways pattern which is often seen after a spike higher in any market. I don’t see anything particularly negative that makes me think gold is about to collapse and give up all of this year’s gains. However, I would not be surprised to see gold head lower towards the 100-week moving average at 1195/1194 and perhaps even as far as the support from the downward-sloping two-year trendline at around 1185. I would suggest that within this 10-point area could be an excellent longer-term buying opportunity with a good chance the recovery will resume.
It is worth noting that the 100-day moving average crossed over and above the 200-day moving average at the end of March, which is often a longer-term bullish signal. However, if we look at the short-term four-hour chart, the picture does reinforce that negative view for current trading.
Clearly, the upward trend on the left-hand side of the chart has been reversed and we have been in a short-term negative trend since the second week of March. You can see we have a more negative moving average crossover just at the point where we tested the upper trendline in the downward-sloping channel on Tuesday of this week. This just reinforces the short-term negativity.
It looks likely we will see prices start to move below minor support at 1225 and perhaps target 1215/1214 then the April low so far at 1208. I wouldn’t be surprised to see that level broken and for us to head towards the first major support level at 1195/1194. I will need to see a break and close above 1238 to convince me that the recovery for this year is ready to continue.
The USD/CHF has been heading lower since at least the beginning of February and has lost quite a lot of ground, tumbling from 1.0257 to a low this week at 0.9543. There is good reason to think that we have just witnessed a low for this move and the pair can start to head higher into April.
Firstly we have 100-week moving average support at 9550, which has obviously held perfectly. More importantly, if you look at the daily chart there is a three-and-a-half-month trendline coupled with one-year trendline support that intersects around the 0.9550 area. In addition we have the 61.8% Fibonacci support at 0.9548 and, as if that wasn’t enough, we also have a positively diverging stochastic at the bottom of the daily chart you see below.
My recovery targets for the USD/CHF are 0.9670/0.9680. If we can make it through here we will have beaten a three-week downward-sloping trendline and this should open the door to the next target of 0.9750/0.9760. Eventually we could make it as far as quite strong resistance at 0.9820/0.9830.
Technical Analyst & Trader
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