Does bearish engulfing on weekly chart of Vedanta suggests trend reversal?

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The stock of Vedanta Limited has formed a morning Doji star candlestick pattern in the second week of April 2020 and thereafter, marked the sequence of higher tops & higher bottoms. From the low of Rs 60.20, the stock has gained nearly 467 per cent in 72 weeks.

However, from the high of Rs 341.45, the stock has lost nearly 21 per cent in just three trading sessions. This resulted in the formation of a bearish engulfing candlestick pattern on the weekly chart, which indicates a pause in the uptrend. The bearish engulfing candlestick pattern is considered to be a bearish reversal pattern, which usually occurs at the top of an uptrend.

This bearish formation has happened along with robust volume, which implies the urgency of selling. This may result in a decline in price more rapidly.

Further, the stock has slipped below its 20-day EMA and 50-day EMA level, which is a bearish sign. The 20-day EMA has started edging lower. Further, the 50-day EMA is losing its upward slope and has started to flatten out.

Talking about the momentum indicators, the leading indicator i.e. the 14-period weekly RSI has given a bearish crossover and also, slipped below the 60 mark for the first time after December 2020. The negative divergence was also spotted at the weekly timeframe on the 14-period RSI. A negative divergence occurs when the price is making a higher high, while the RSI forms a lower high. The daily RSI has slipped below the 40 mark. Moreover, the momentum indicator i.e. the MACD line has crossed under the signal line, which resulted in the histogram turning negative.

Technically, all the factors are currently aligned in support of the bears. Hence, we would advise the traders to be with a bearish bias. On the downside, the 100-day EMA level is likely to act as immediate support for the stock, which is currently placed at Rs 264.25 level. While on the upside, the 50-day EMA is likely to act as an immediate hurdle for the stock, which is currently quoting at Rs 285 level.

Gold Price Forecast: XAU/USD remains subdued below $1,800 on mixed clues, risk-off sentiment

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Gold is on the verge of a test of the 78.6% Fibonacci retracement level but has stalled in USD resilience.

US yields firmed from their lowest levels since Aug 5, supporting USD despite Retail Sales miss.

DXY has rallied through near term resistance targets to take on another critical daily resistance.

Gold’s daily chart is being monitored for a Bearish Doji and subsequent test of 10 EMA support.

Update: Gold prices remain virtually unchanged below $1,800 on the recent fears of the rising coronavirus cases globally. The stronger US dollar also weighs on the prospects of the prices. The weaker-than-expected US Retails Sales data pointed at the consumer worries about the rapid increase in the Delta variant of the coronavirus, and weak consumer morale eased some pressure off an early tapering by the Federal Reserve. The 10-year benchmark US Treasury yields trade higher at 1.26% with 0,69% gains, exerting pressure on the non-yielding asset. Global equity sell-off triggers some bottom buying opportunities in the precious metal. The higher USD valuations make gold expansive for the other currencies holders. US Federal Reserve Chair Jerome Powell said uncertainty lingers on the impact of the recent outbreak of the coronavirus Delta variant on the economy, which raised doubts about the timing of the Fed’s tapering and eventual interest rates hike.

The price of gold has been bid-up due to short-covering of late despite a resurgence in the US dollar.

However, at the time of writing XAU/USD is off the $1,795.60 highs scored in the London session, with progress towards a 78.6% Fibonacci level, (1,798), cut short following a sudden rally in the greenback.

This leaves XAU/USD -0.22% on the day at $1,783 and nestled between its hourly 200 SMA, the lows of the day at $1,780.67 and where the hourly 10 and 20 EMAs align as resistance.

The market would be expected to consolidate in the absence of shocks, but the Federal Reserve’s chairman Jerome Powell is participating in a University Q&A currently, 17.35 GMT.

While it likely does not serve as a platform for the Fed to make any official announcements, traders are scanning for Fed speakers and their outlooks for the US economy, covid risks and will be looking for clues for when the Fed will taper.

However, where more clarity is most likely will be during the Jackson Hole on 26-28 Aug.

Meanwhile, the US dollar is picking up a bid due to the central bank divergence theme.

The Federal Reserve is expected to tighten monetary policy at a time where the Delta variant is hampering such prospects in other nations where their central banks are less hawkish, such as Australia.

Following the Reserve Bank of Australia’s minutes, for example, where there the bank warned of the risks to their ability to hike rates due to the uncertainty about the economy following covid-related lockdowns. (AUD/USD dropped on the divergence between the Fed and RBA to the Oct 2020 resistance and lowest levels since Nov 2020).

In contrast, the FOMC recently raised its inflation forecast considerably for 2021, and most members see the risks to inflation as skewed to the upside which leaves a hawkish bias at the Fed.

USD smile theory in play

Indeed, the US dollar smile theory, which is something that has been written about in previous articles for some weeks, continues to play out.

More on this from such prior articles as this: US dollar teases reversal traders, Golden Cross underpins

In short, broadly stronger US data are feeding into increased dollar bullishness and the Fed continues to take tentative steps towards tapering. On the other hand, risk-off and uncertainty pertaining to the global pandemic are also expected to support the US dollar recently.

Therefore, the greenback is likely to benefit in either situation. Hence, the ‘‘dollar smile’’ as the dollar turns up at both ends of the risk spectrum.

US IP offsets Retail Sales miss, USD stays bid

Meanwhile, the US Retail Sales on Tuesday were hugely lower than expected and prior, yet, the US dollar held on to the top spot on the forex leader board, second to the risk-off yen and CHF on the day.

However, regardless of the 1.1% month-on-month drop, the bigger picture involves the re-opening of the economy and the implications of rising household incomes.

Spending across both goods and services would be expected to continue to grow and feed into the inflation loop as well as the jobs market on which the Fed is most concentrated.

Hence the resilience in the US dollar and US yields managed to correct from the late Asian market lows on Tuesday despite the mixed US data.

A much better-than-hoped Industrial Production release went some way to offset the miss in Retail Sales. Total industrial output climbed 0.9% month-on-month in July versus market expectations of a 0.4% gain.

Gold accumulated by central banks

As for the gold price, ‘‘while speculators have been growing more anxious of the looming taper, they have likely been selling to central banks which have recently been growing their appetite for the yellow metal,’’ analysts at TD Securities said.

The analysts argued that this, in turn, likely points to short-covering as the market aggressively added shorts during the breakdown.

Gold & DXY technical analysis

In a prior analysis, US dollar teases reversal traders, Golden Cross underpins, it was anticipated that there would be some let-up in the greenback’s strength ahead of the Jackson Hole:

However, the deterioration was fast on the back of a big miss in Consumer Sentiment last Friday:

In the prior analysis, it was stated that there would be a bias to the upside while above 92.351 which will be a headwind for the gold price going forward.

As of Monday, the DXY had been making tracks as anticipated:

On Tuesday, the greenback took off and has taken out a major resistance of 92.80 and is now embarking on making a move a test of daily highs ahead of the more critical March 2021 93.43 highs.:

It was also explained in prior analysis that gold was headed towards prior support and a test of the 78.6% Fibo at 1,798 as follows:

As of Monday, while the price had made headway, there was still $10.00 to go to the upside:

On Tuesday, gold has continued to make headway towards the target but it has fallen short by $3.00 as of the time of writing:

While the death cross is less significant, perhaps more psychological than anything at this juncture, the Doji candle information could be the catalyst for supply in the coming days.

Since October 2001 selling gold after a death cross has failed more than it has succeeded, but the Bearish Doji Star appears in an uptrend and belongs to the bearish reversal patterns group.

Traders will be looking for additional confirmation such as a subsequent break below the 10 EMA and confluence of the 4-hour support of 1,770.

Meanwhile, a break of resistance opens risk back into the 1,800s.

However, failures will likely lead to a downside continuation of the broader bearish trend to target the 50% mean reversion and the confluence of the 200-day Smoothed MA near 1,755 and then 1,677 daily swing lows will be key in this regard.

Gold Price Forecast: Bears back in town as markets digest FOMC, USD goes bid

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Markets offer a mixed reaction to the Minutes and gold is steady.

The US dollar is on the verge of a critical move towards daily resistance.

Gold’s bearish Doji and the confluence of resistance leaves the bias bearish.

Tokyo session update:

The price of gold is sat in a tight range and slightly down in the day by 0.13% as the US dollar perks up towards a critical resistance zone on a longer-term basis, reversing the sell-off post-FOMC minutes.

The greenback retreated from 4-1/2-month highs to trade little changed on Wednesday after minutes of last month’s Federal Reserve meeting suggested there was no consensus about the timing of a tapering of its asset purchases under the US central bank’s quantitative easing program.

The minutes also said most participants “judged that the Committee’s standard of ‘substantial further progress’ toward the maximum-employment goal had not yet been met.”

The lack of urgency sent US yields a touch lower along with the greenback.

US yields ended around flat on the day. The 2-year government bond yields traded at 0.22%, and 10-year government bond yields traded at 1.26%.

However, in recent trade, the DXY has perked up with the 93.43 critical level on sight as the price trades at 93.324 at the time of writing.

Gold bears looking for a break of 1,780 for the coming hours.

End of update.

The minutes of the prior Federal Open Market Committee meeting for July 27-28 have been released and have shown that officials felt recent inflation readings likely temporary but most they feel it could be appropriate to start tapering the asset purchases this year.

In response, the US stock market is sinking towards the lows of the day, US yields and the US dollar are being pressured with the greenback moving in on the psychological round 93.00 level in the DXY and gold prices are supported.

At the time of writing, XAU/USD is trading at $1,784 and has been holding in a range of between $1,777.43 the low and $1,7933.83 the high.

It is a mixed reaction to minutes that, on one hand, underpin the hawkish message at the Fed and the need to monitor risks in economic data that could lead to higher and longer than expected inflation.

On the other hand, the minutes outline the importance of ensuring that there should be no link between tapering and the timing of rate rises:

‘‘Many participants noted that, when a reduction in the pace of asset purchases became appropriate, it would be important that the Committee clearly reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate,’’ the minutes stated.

However, the minutes do not signal that there was an imminent need to taper which potentially leaves the Jackson Hole as the market’s wild card still; It is still no clearer if a taper announcement will be made at the event.

‘‘Fed officials have increasingly been pointing to tapering starting before too long, with many hawks making the case for a formal tapering announcement in September. However, the hawks appear to be a vocal minority with many more, most likely including the Chair, favouring waiting until at least November before announcing taper,’’ analysts at TD Securities explained.

The trajectory of the US dollar and yields around the event will be critical for the precious metals markets and a headwind for the bulls in bullion.

For the time being, however, the US dollar can remain bid against most major currencies due to the concerns about the global economy that has forced investors to seek safety in the greenback.

Additionally, the greenback has been thrown a lifeline in the recent dovishness at the Reserve Bank of Australia as well as the Reserve Bank of New Zealand which underscores the divergence between the Fed and other global central banks.

The US dollar smile theory is still something that is very much in play and the DXY is embarking on a critical level of technical resistance confluence on the longer-term, charts, a break of which could lead to some serious upside for the greenback.

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