XAUUSD was volatile over Friday and yesterday's trading sessions. However, Friday was a bullish turnaround following the CPI announcement as money rotated into gold as a perceived inflation hedge.
Yet yesterday's session holds our interest (blue down arrow). It shows extreme buyer's remorse. The selldown was accompanied by intense emotion, as holders of the precious metal exited almost in a panic. As a result, this long red candle is a rare bearish pattern called an outside day. Unbelievably its range is greater than the extreme range of Friday's session, amplifying the run to exit.
The outside day has resulted in the daily chart trading in its weak area between the lower blue and red bands. On the other hand, today's candle (up blue arrow), which is still incomplete and subject to change, is a spinning top. I.e. both bulls and bears have tried to capitalise on yesterday's extreme price action, but neither has succeeded. As a result, there is a sense of indecision ahead of the US session.
The hourly chart on the right does hint at weakness. Its trend-following EMAs have crossed down (black ellipse). However, the momentum oscillator (red ellipse) is still to follow, confirming the current indecision. The market participants are puzzling over the gold inflation hedge against the dollar's strength factor. The outside day puts the greenback ahead. Tomorrow's Fed announcement will be pivotal for near-term volatility, depending on whether the market views it as more or less hawkish than expected.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.