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Gold edged higher after the unexpected Fed's decision to cut the interest rate by 0.50% yesterday's night. The price has increased from $1,587 to $1,649 in a single session, invalidating a potential larger corrective phase. The outlook for gold is bullish as long as the price is trading above $1,600 psychological level. The global risk could send the Gold price towards fresh new highs in the short run. I said in my latest analysis that we may see only a temporary correction as a drop was somehow expected after the impressive rally.
A broader corrective phase would have been confirmed below $1,555 level, but the price was kept above this critical support. We'll see how Gold will react today as the BOC is expected to trim the Overnight Target Rate from 1.75% to 1.25% as the coronavirus risk is growing.
Gold has tumbled sharply after the price developed a Shooting Star (Pin Bar). RSI signaled a bearish divergence. The price registered only a false breakdown with a great separation below the 50% retracement level. The $1,555 level has represented a major support, only a valid breakdown below it and another lower low would have confirmed a major corrective phase on Gold.
The price has increased, but it has encountered a temporary resistance at the inside sliding line (SL) of the descending pitchfork and is now retesting the 23.6% retracement level. A further increase towards new highs will be confirmed after a valid breakout above the upper median line (UML).
So, the outlook is bullish as long as the price is trading above $1,600 and most important above the $1,555 level. You should be very careful today because the BOC rate cut could bring a high volatility and a potential bullish momentum.
Technically, the price has shown some overbought signs on the Daily chart, but fundamentally, Gold is still expected to climb way higher. If the price makes a valid breakout above the upper median line (UML), gold should increase at least till the $1,689.25 previous high. $1,700 could represent an upside obstacle as well.
Gold could drop today only if the Bank of Canada makes a hawkish statement and if they decide to cut the rate less than expected. The US ADP Non-Farm Employment Change and the ISM Non-Manufacturing PMI could bring life on Gold as well.
We may have a long opportunity if the price consolidates above the 23.6% retracement level and if it makes a valid breakout above the upper median line (UML). A potential drop towards the $1,555 level could develop if the price fails to reach the UML or if we'll have a false breakout above this dynamic resistance.
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