In an otherwise choppy trading session to start the week, gold has leveled off around the $1860 mark which roughly coincides with the midpoint of a potential descending channel. The possible formation is drawn from the August high and low to the November trough and January peak and could continue to guide the precious metal lower in the weeks to come. With that in mind, nearby technical levels could help traders position should the gradual bleed lower persist.
GOLD (XAU/USD) PRICE CHART: 4 – HOUR TIME FRAME (AUGUST 2020 – JANUARY 2021)
Early resistance might lie at the Fibonacci levels near $1883 and $1920. The $1956 level may be more important, however, as it coincides with the metal’s peaks in November and January. Thus, it can be argued it is the “line in the sand” that, if broken, could open the door to a longer-term continuation higher as it would curb the series of lower-highs that have been established and serve as a bullish break out of the potential descending channel.
Unless such a break is staged, the multitude of resistance overhead could provide potential entry points for bearish exposure in the weeks ahead – barring a concrete change in the fundamental landscape – with levels of invalidation set above the $1956 area. Wednesday’s Federal Open Market Committee meeting possesses the gravity required to spark such a change, however, and should be monitored closely as a result. Any indication from the central bank that they will tweak their current operations could have significant implications for XAU/USD.
Written by Peter Hanks, Strategist for DailyFX.com