Expect XAUUSD to retrace to US$1,284-1,294 levels

LOCO London gold reached its peak of US$1,365.489 for 2018 on April 11 and performed a mean reversion to the low of US$1,159.468. It subsequently broke the all-important mark of US$1,300 on May 15. Bearish sentiments ushered in a substantial wave of selling thereafter. The strong move downwards was sustained for a period of three months and has since made a slow recovery back up to the US$1,320 level where it is presently. From the technical perspective, we have a bearish bias on the pair.

In this analysis, two key instruments are utilised to forecast forward outlook, the Fibonacci retracement as well as the stochastics oscillator. The Fibonacci retracement is created by taking the highest and lowest points in the chart, and then dividing the vertical distance by the key Fibonacci ratios of 23.6 per cent, 38.2 per cent, 50 per cent, 61.8 per cent and 100 per cent. These levels are then considered as key support and resistance. The stochastics oscillator is a directional indicator as well as measure of momentum. A reading above 80 signifies an overbought condition while a reading below 20 represents an oversold condition. Do note that it is not meant to be used in isolation but in tandem with other factors to attain confluence, thereby adding confirmation to a forecast.

Zooming into the charts, it may be observed that prices have approached a significant level of resistance at US$1,322.720, which coincided with previous validated points of support and resistance (marked out by the red circles). Coupled with that, the stochastics oscillator (5,3,3) is currently sitting way above the 80 mark which indicates an overbought condition. With these two conforming signals, we postulate an impending reversal as a pullback in the momentum before continuing in the existing trend to reach the 100 per cent retracement level at US$1,365.462.