XAUUSD at Overbought Levels Last Seen in 2022 – Inflation Data Weighs

The shiny metal has been trading for the past 4 sessions at RSI levels not seen since March 3, 2022.

The RSI on its own may not be enough to warrant a turning point for a retracement. But when the RSI gets closer to 90 on the day chart, the greater the chances that retracement takes place. I’m considering the day chart but also the 4-hour chart.

From the XAU/USD 4-hour chart below we can see how price action has rallied strongly and hit a new ATH on Friday 8. However, that ATH also coincides with an upside-down hammer candle (purple rectangle). We could expect a retracement to start immediately afterward.

But that type of action is not always the case, particularly in a strong bull market. So, what I see over the last 5 candles is consolidation. The market is taking a breather, either to continue the rally higher or to retrace to more sustainable levels.

And given the ATH occurring on a specifically bearish pattern, it looks more likely a retracement is about to happen. The candle in question is also one of the best you can find. It coincides with a steep upward trend, and there are no candles to the left of it on the chart.

Fundamentally

We need to understand the bull market, and I believe the biggest factor is the increasing expectation of a Fed pivot point coming sooner. Or rather within the next 6 months, the days are passing, and the moment is only getting closer.

Those hopes could be shattered if there is a strong inflation number tomorrow. The US inflation data will be released tomorrow at 08:30 am NYT.  Forecasts are for YoY inflation to remain stable at 3.1%. And for Core YoY Inflation to drop from 3.9% to 3.7%.

If there is any upward surprise in those numbers the expected retracement could be even larger. It looks like the market has settled at these levels, which it reached on Friday afternoon and carried into the European session.

There’s a reason why the market has settled and that has to be tomorrow’s numbers. So tomorrow I expect a big day in the XAUUSD market, not just for indices and forex.