Technical Analysis: Key Gold Zone Heading into FOMC

June 12, 2015

You read trading rules on financial Twitter that tell you to not let fundamental bias cloud your technical judgement when it comes to entering a trade. In theory this is all good and well. If a setup is there and you know that over a period of time you need to take these trades to be profitable then of course I agree. But if you are filtering your trades to the direction that you know the market is positioning itself, I can’t agree that having a fundamental bias is a negative.

With this in mind, in today’s Asian Session Morning blog, I spoke about heading into next week’s FOMC meeting, that although unlikely, it’s the first month where a rate hike is actually in play. Of course with an early move from the Fed nowhere near priced into markets, this would be very USD positive. I wanted to then highlight the zone that Gold is currently trading inside and try to take advantage of this view with a few charts and trading ideas below.

XAU/USD Weekly:
Click on chart to see a larger view.

As you can see on the weekly, the 2011 ‘bubble’ burst and we have retraced back to a key zone of interest for both buyers and sellers over the years.

The string of lower highs show buyers being soaked up with each push off the zone, causing the level to get weaker and weaker. This is the sort of price action that tends to preclude a breakout because when the buyers have all been soaked up, only sellers remain and the only direction for price to go is down.

Although there are clearly buyers in this zone, the lack of buying conviction over the last few months combined with the possibility of a big fundamental shift from the Fed next month has me interested in trying to get on board a breakout early and playing this setup now from the short side.

XAU/USD Daily:
Click on chart to see a larger view.

Zooming in a little closer and taking a look at the 4 hour chart, we have an actionable setup where we can clearly define our risk.

Still inside the weekly zone, price has broken a short term trend line and then was rejected when trying to retest the broken level now as resistance. This retested level, as well as the 4 hour swing high just above give great risk:reward to play this setup from the short side.

Just remember the goal here is to build a short position before the breakout actually comes. If your’re wrong and it doesn’t come then you’re wrong and it doesn’t come. But this setup has opened up your risk:reward from a 1:2 to 1:10 on only your original position.

All we need now is the Fed to come to the party.

Let us know how you’re managing your exposure to Gold heading into the next FOMC meeting? Leave a comment below or mention @VantageFX on Twitter.

Dane Williams – @VantageFX

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