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Gold has More Room for its Bullish Correction

Bullish Reversal: Gold has turned bullish since last week’s FOMC statement. As we get into the middle of this week, the previous metal still got some room to run. Let’s take a look at the charts.

Gold (XAU/USD) 4H Chart 2/25

(click to enlarge)

The 4H chart shows a market that found support at 1143, which was above the 1130 low on the year. Then, after a bullish pop that followed the FOMC statement, it was able to test 1160 as support and confirmed the bullish breakout. It has since been drifting higher, and is poised to test 1200 today (3/25).

Breakouts: In the 4H chart, the technical conditions are turning bullish as price broke above the falling trendline that’s coming down from February’s and 2015’s high at 1307. Price is about to clear the 200-period SMA, and the RSI has tagged 70, which shows initiation of bullish momentum.

Bearish Divergence; Pullback:
There is a bit of bearish divergence, and price is going to test the 1200 psychological handle. We can expect some intra-session resistance here. If the bullish correction is here to stay, we should monitor the 1170-1776 area for support, and the 4H RSI to hold above 40. A break below 1170 might revive the bearish outlook, and if the RSI falls below 40, gold would have killed its prevailing bullish momentum from last week.

To the upside, we should start monitoring for stronger resistance around 1220, which is a key support/resistance area.

Gold (XAU/USD) 4H Chart 3/25

(click to enlarge)

At 1225, gold would be at 50% retracement and right in the middle of the 200-, 100-, and 50-day SMA cluster. Also, we should monitor the daily RSI as it approaches 60. If the current rally is a short-term bullish correction to a medium-term bearish trend, we should expect a bearish attempt with price around 1220 and the RSI around 60.