(Jason Sen – DayTradeIdeas.co.uk)
There was a concerted effort to send a message to financial markets (yet again) that the inflation fight is not over & higher rates for longer remain the Fed & ECB policy. This has been a consistent message but totally ignored by the markets.
Indeed, interest rate cuts in H2 had been priced in. As you know this made no sense to me whatsoever but you can’t fight the markets. These unexpected comments obviously sent the dollar soaring & Gold & silver plunging. All the more unexpected after the dollar appeared to have resumed its 7-month bear trend during the week & Gold & silver had looked so strong all of this week.
The dollar index DXY opened lower but had beaten Thursday’s high by the close, leaving a bullish engulfing candle.
Gold wiped out almost 3 days of solid gains in just a few hours. At 1 stage Gold has crashed by $55 or nearly 3%, hitting $1992 from a high of 2047. I did warn that Gold was severely overbought & hitting a short-term trend line resistance & that a downside correction was always possible but there is no way I could have expected what followed.
There was no warning on short-term charts, we just reacted to comments from central bank members.
Silver crashed almost $1.00 or nearly 4%, wiping out almost 2 days of very strong gains on the prospect of significantly higher interest rates. Oddly, the stock markets did not react & held firm.
Technical analysis and trade ideas
Gold I warned was severely overbought & testing an upward-sloping 4-week trend line 2050/53 & that a downside correction was always possible to ease overbought conditions but I could not have expected a 3% crash in just a few hours.
Looking back over the 5-month rally, it actually has been difficult to run a long position, because there are frequent collapses of 3% or more.
From the 20th to the 21st of March Gold also crashed by $75. There were no further losses, despite this serious bull trap & Gold traded sideways for the next 9 days. Perhaps this will happen again. We do have 23.6% Fibonacci support at Friday’s low of 1992, which I assume is why we saw a low for the day here. Longs need stops below 1987. A break lower should be a sell signal targeting 4-week trend line support at 1973/70. Longs need stops below 1965.
If you try a long at 1993/91 look for 2000/01 & perhaps as far as 2010/12. I am guessing that gains are likely to be limited after Friday’s bull trap. However, if we continue higher look for 2018/20, perhaps as far as 2028/31.
Silver rocketed almost 140 ticks after Monday’s buy signal & we looked set for further gains on Friday as we jumped 30 ticks from the open. Yes, the market was severely overbought, but there was no resistance which appeared to risk a significant move to the downside. Obviously the central bank comments warning of higher rates for longer triggered panic & silver drop almost 100 ticks in about 3 hours, leaving a bearish engulfing candle on the daily chart.
We have a 1-month trend line & 50-period moving average on the 4-hour chart offering support at 2510/05. If you try for a long, stop below 2500. A break lower should be a sell signal after Friday’s bearish engulfing candle (which can be an important sell signal) targeting 2470/60.
Silver longs at 2510/05 can target 2535, perhaps as far as 2570.
WTI Crude (May) breaks above 8200 for a buy signal as expected & kindly dipped back to m buying opportunity at 8200/8160. Longs can retarget resistance at 500 & 200-day moving averages at 8380/8430 (which actually was yesterday’s high for the week). A break above 8430 is the next buy signal for this week.
Longs at my buying opportunity at 8200/8160 need stops below 8120. A break lower is a sell signal targeting 7960/30.