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Mid-term trading idea XAU/USD – short position

I wrote yesterday that I would be looking to either buy or sell gold after the conclusion of the Federal Reserve’s meeting depending on their decision with regards to monetary policy. I decided to go with the “First option” that I described in yesterday’s review, i.e. to open a short position. The main reason for this is the softening of rhetoric from the Federal Reserve with regards to monetary policy. Yesterday, the US regulator issued an advance publication its new economic forecasts, in which it downgraded its “long run” projection for the key rate from 3.0% to 2.8%, as it had been previously.

The Fed also adjusted the trajectory of its interest rate hike cycle, with the key rate set to reach 2.7% by 2019, rather than 2.9%. Additionally, Janet Yellen hinted that if economic conditions should worsen, the Fed would be ready to reduce rates. I think that this softer rhetoric will give investors peace of mind, as well as increased confidence that the US economy is on the right track. As a result, gold, as a safe haven asset, should see a reduction in demand and we could see the price slide as far as 1,250 – 1,260 USD.

I’ll outline for you once more what trade I’m considering on the 4-hour timeframe:

At the time of writing, gold is trading at 1,297.50 USD per Troy ounce, at the same level as the recent double top. I’m going to open a short position in two parts. First, I’m now going to open a short position at 1,297.50 USD with a Stop Loss level at 1,331 USD and Take Profit at 1,285 USD. As for the second part, I’ll open another position if the price bounces from its current level, forms a top below 1,325 USD, and then continues downwards. If this plays out, I’ll add a second trade to my short position with a Stop Loss above 1,331 USD and Take Profit at 1,295 USD.

Some may ask why the distance to the Stop Loss level in the first part is greater than the distance to the Take Profit level. I’ve set it this way because, in my opinion, if gold starts to decline, it could bounces off the resistance line of the potential downwards trend on the hourly timeframe:

In fact, if gold forms a downwards trend on H1, I’ll trade according to this trend, as it should continue.

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