US Dollar and GOLD Technical Analysis

The US Dollar tends to be driven by relative economic growth. As the global reserve currency, when the rest of the world is strengthening, often at a faster pace than the US Economy, it is common for bonds to be issued in US Dollars and then converted to invest abroad driving the US Dollar lower. Another way to see this phenomenon in action is to look at junk bond yields. A falling yield in the US Junk Bond index tends to show a force behind US Dollar weakness whereas rising junk yields tend to favor repatriation and USD strength.

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Recently, the bid in junk bonds had been so intense that the spread between yields on investment-grade and junk-rated debt was the narrowest since 2007 showing a preference to chase yield over creditworthy borrowers. Again, this drive was sending bonds that were issued in USD abroad and done so by selling USD.

Retail trader data shows 51.1% of traders are net-long with the ratio of traders long to short at 1.04 to 1. The number of traders net-long is 2.7% lower than yesterday and 40.9% higher from last week, while the number of traders net-short is 2.1% lower than yesterday and 16.6% lower from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week.

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The march higher in US Yields has been doing much of the heavy lifting for the US Dollar. The question now is what will stop the ever-rising yields? The onslaught of supply at Treasury auctions and stable US economic data combined with rising commodities (namely, energy) seem to speak to an environment ripe for rising yields, and thus, a rising US Dollar.
Traders are often quick to identify a theme and then identify winners and losers within the theme.

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There has been a shift since mid-April in favor of long USD positioning among short-term or leveraged investors in recent weeks, and questions remain as to whether real money buyers will also get behind US Dollar strength. Real Money has staying power and can help put in a higher floor behind a market.

The increase in bullish USD positioning has come mostly against European currencies. EUR net longs have fallen $6bn ($23.4bn to $17.0bn) since April 20 release or on April 17 data ($0.8bn this week.) GBP net longs have decreased by $4bn ($0.3bn this week.) CHF net shorts have increased by $3bn ($0.5bn this week.) Meanwhile, AUD accounted for $0.9bn of this increase over the last month. Bearish AUD positioning increased by $0.5bn this week.

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Last Week's FOMC policy meeting saw interest rate expectations shift as markets priced in a fourth rate hike this year- near-term bullish for the USD. The Dollar Index posted an outside weekly reversal through confluence resistance with the rally stretching into the 200-week moving average, now at ~95. A newly identified ascending pitchfork formation extending off the 2017 and 2018 lows also has price testing the upper 50-line into the start of the week.

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The Dollar is testing near-term resistance here and while we could see some pullback in price, the broader focus is on a hold above the 93.89-94.20 pivot zone. A breach higher from here targets 96.04/35 backed by the median-line confluence just above the 97-handle. A break below last week’s low targets the median-line of the newly added formation around ~92.90s with critical support / bullish invalidation steady at the yearly open / 52-week moving average at 92.28/45. From a trading standpoint, I’ll favor fading weakness while above 93.90.

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As the US Dollar basket yet again approaches the 95.00 handle, eyes are back on the familiar resistance, which has previously capped its rise. This is situated at 95.20, which had curbed further gains for the DXY on June 21st and 28th. The question is, will it hold again?

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Trend signals suggest that there is scope for additional gains in the USD. RSI indicators on a daily timeframe is just shy of moving into the overbought area, subsequently, signalling that a continued USD rise will likely be limited. Alongside this, momentum indicators have moved into positive territory, showing slightly positive signs, however, progress is needed.

Short term resistance at the 94.76 level, which marks the 76.4% Fibonacci Retracement level of the 94.20-93.33 fall is holding up for now. However, a break above this could set the DXY on course for a retest of the June double top.

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The US Dollar is seeing its sharpest pullback after touching technical resistance mid-month at 97. The Dollar Index has pulled back by 2.4% despite hawkish talk from Fed members. The key question on the charts will be as to whether the next move higher in US Dollar will result in a lower-high that is followed by the next big breakdown.

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As a technically-driven FX trader, the most important development for me to watch is what happens on the immediate pull-back. If we see a weak, three-waved pull-back higher that is limited to 95.30 before resuming lower, then we could see multiple weeks or more of US Dollar weakness that could lead to opportunities in beat-up currencies like the Australian Dollar despite improving fundamentals.

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Spot Gold: Retail trader data shows 83.7% of traders are net-long with the ratio of traders long to short at 5.15 to 1. The number of traders net-long is 5.8% higher than yesterday and 6.0% lower from last week, while the number of traders net-short is 15.7% lower than yesterday and 19.6% higher from last week.

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We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Spot Gold trading bias.

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Gold has been on the offensive with the price breakout now testing BIG technical resistance after rallying more than 6.5% off the yearly lows. While the broader focus remains higher, the immediate advance looks vulnerable as price approaches this critical barrier.

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A closer look at price action shows gold continuing to trade within the confines of the ascending pitchfork formation. A multi-day consolidation structure looks to have broken today- but the advance is running into some key technical targets on the topside. The immediate focus is on a reaction at this key resistance barrier.

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Long positions are 0.5% higher than yesterday and 5.5% lower from last week. Short positions are 2.1% higher than yesterday and 4.7% higher from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Spot Gold price trend may soon reverse higher despite the fact traders remain net-long.

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Technical Forecast for US Dollar: Bearish

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We have started the new trading year in earnest, but the Dollar continues to hold to the range it maintained through the final two months of 2018. That is unlikely to be the case for much longer however. The rest rate of volatility has increased across the entire financial system. We have seen volatility in US equities in particular surge both in price-based measures (like the ATR) as well as implied figures (derived from options). It is possible for a single asset or currency to diverge from the norm for a while; but that is not a condition that can persist indefinitely.

While it may not have to happen in the week ahead, the Greenback is very likely to break from its range between 97.70 and 95.80 soon. We can see the levels of activity are starting to seriously threaten the quiet normalcy when we consider the DXY Dollar Index's technical range and its underlying activity. Below, we have the 20-day average true range (a good measure of activity) in red and the 50-day range as a percentage of the underlying currency's price. This looks like a highly pressurized breakout risk.

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The gold price advance has lost stream just ahead of key resistance on the fourth consecutive weekly gain.

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Look for initial support along the 52-week moving average, currently at ~1269 - weakness beyond this threshold would risk a more substantial correction towards the August trendline. Broader bullish invalidation remains at 1236 where the 200-week moving average and December 2017 low converge on channel support.

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Spot Gold: Retail trader data shows 68.4% of traders are net-long with the ratio of traders long to short at 2.16 to 1. The number of traders net-long is 8.9% higher than yesterday and 3.6% lower from last week, while the number of traders net-short is 0.2% higher than yesterday and 4.2% lower from last week.

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We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Spot Gold-bearish contrarian trading bias.

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From a technical perspective, gold was likely due for a noticeable pullback judging by the red-hot relative strength index (RSI). The RSI has been increasingly sending an ‘overbought’ signal due to the 13 percent runup in the commodity since bottoming August of last year. As such, the selling in gold could be viewed as a healthy ‘reversion to the mean’ with prices consolidating back towards its moving average.

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Although, gold bulls were likely disappointed after the 0.786 Fibonacci retracement line – which rests around the psychological $1,300 support level – did not hold with prices breaking below this consolidation area. This may have soured sentiment further and induced additional selling as short-term momentum traders react to the apparent end of gold’s parabolic ascent.

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On a strictly statistical basis, the Dollar closed out a particularly painful week. Yet, the context of its broader technical patterns and environment suggests we are not yet in a position to expect the revival of a genuine trend. Extending its impressively precise range reversal from 97.75, the DXY dove back into the middle of its congestion pattern stretching all the way down to support defined by the confluence of the trendline reaching back to May and the 200-day simple moving average now at 95.80. From Friday close to Friday close, the index dropped approximately 0.8 percent for the worst slide since the week of August the 20th. Before that, we don’t have a comparable performance until February of last year – when the currency was searching out the bottom of its 14-month bear trend. This move promises little for the development of a new phase beyond the established range. On the other hand, volatility applied to tightly bound spaces runs a greater and greater risk of prompting a breakout – especially as key events like this coming week’s FOMC rate decision pop up.

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Big-picture wedge continues to develop

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The US Dollar continues to be a difficult market for traders as low volatility puts a strangle-hold on the trading environment. Looking at the big-picture ascending wedge developing it is well within reason to expect more of the same for a little while longer as the pattern continues to fill out towards its apex.
This doesn’t mean there won’t be room for opportunities or for a surprise move as low-vol is indicative of complacency among market participants. With that said, though, patience and trade selectively will be the key until a more fertile trading environment develops.

The two primary points of interest are the top-side horizontal line crossing over peaks since November and the underside trend-line of wedge, which also happens to be in confluence with the rising 200-day MA. There is another trend-line running up from early 2018, but of lesser importance than the one just beneath it.

For now, the thinking is to look for fade-trades off one of the aforementioned levels once momentum turns in the other direction. Should one side break (top-side looking most likely) then the game-plan will pivot towards running with the breakout as volatility may finally see a pop.
What may push the DXY into resistance early this coming week, is a falling wedge on the 4-hr time-frame. It may not trigger its top-side trend-line so waiting for an actual breakout is crucial. Given its close proximity to the 97.60s this is likely to only hold a small amount of potential before price could reverse off big resistance.

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Retail trader data shows 74.0% of traders are net-long with the ratio of traders long to short at 2.85 to 1. The number of traders net-long is 0.3% lower than yesterday and 11.7% higher from last week, while the number of traders net-short is 10.9% higher than yesterday and 5.5% higher from last week.

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Price is approach the upper bounds of this consolidation range with daily resistance steady at the August 2013 high at 1433. A breach / close above this threshold is needed to validate the breakout with such a scenario eyeing subsequent resistance targets at 1451 backed by the 50% retracement of the decline off the record highs at 1483.

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Notes: A closer look at gold price action shows gold breaking above the weekly opening-range highs on an outside-day reversal candle yesterday with price defending weekly open support today at 1415. The focus is on a breach above consolidation resistance at 1433/35 to keep the long-bias in play targeting 1441 and 1451. Monthly open support rests at 1409 backed by 1440 – ultimately a break / close below the July support line, currently ~1390 needed to suggest a larger correction is underway.

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Gold prices continue to struggle to regain their footing in an environment defined by cooling tensions on the US-China trade war front. The latest truce between the world’s two largest countries has provoked a recalibration of easing expectations from the G10 currencies’ central banks, in turn sending sovereign bond yields higher across the developed world. The sharp rise in US Treasury yields in particular can be pointed to as a reason for gold’s recent struggles.

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The shifts in US Treasury yields around the latest US-China trade war news feeds directly into one of the most important fundamental underpinnings of precious metals’ rallies: environments that produce falling real yields tend to be the most bullish. On the other hand, environments that produce rising real yields tend to be the most bearish for precious metals.

Real yields are inflation-adjusted yields: in this case, the US Treasury 10-year yield minus the headline inflation rate. Why does this matter? Investing is all about asset allocation and risk-adjusted returns. On the asset allocation side, it’s about achieving required returns given the investor’s wants and needs.
If inflation expectations are rapidly increasing, you would expect to see fixed income underperform: the returns are fixed, after all. Why would you want to have a fixed return when prices are increasing? On a real basis, your returns would be lower than otherwise intended.

Rising US real yields means that the spread between Treasury yields and inflation rates isincreasing. If precious metals yield nothing (no dividends, coupons, or cash flows), they would be ill-suited to hold when US real yields rose.

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The US Dollar may rise as initial jobless claims stabilize at historically elevated levels. Non-farm payrolls may surprise higher, but FOMC minutes could sink the S&P 500 and boost USD.
More of the same could be ahead. Data out of the world’s largest economy has increasingly outperformed relative to expectations.

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Gold prices may surrender to the US Dollar if another wave of the coronavirus hammers global growth prospects and destabilizes the fragile corporate debt market.

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Anti-fiat hedges like gold may surrender in the third quarter if a second wave of the coronavirus hits the global economy and dampens future inflation prospects. Demand for haven-linked assets like the US Dollar may amplify XAU/USD’s losses as traders re-allocate capital from relatively illiquid commodities to more frequently-traded currencies like the Greenback. Rising unemployment numbers and uncertainty embedded in labor statistics could also magnify the appeal of holding haven-linked assets. The prospect of another lockdown in numerous localities around the United States could further dampen price growth and erode the appeal of gold. Fed Chairman Jerome Powell warned that the road to recovery will be arduous and “long”. Furthermore, financial fragility in the corporate debt sector could also hurt gold prices if the market for leveraged loans and other credit derivatives undermine interbank stability. The dramatic widening of spreads on credit default swaps (CDS) for sub-investment grade corporate debt during the global selloff in equity markets in March saw gold prices crater with risk-oriented assets.

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Gold prices may surrender to the US Dollar if another wave of the coronavirus hammers global growth prospects and destabilizes the fragile corporate debt market.

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• Gold prices could retreat if a second wave of the coronavirus hits the global economy.
• XAU/USD losses may be amplified by rising unemployment figures, weak price growth.
• Gold may surrender to USD if eroding fundamentals destabilize corporate debt market.

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Gold performance continues to glisten. The precious metal has staged an impressive 12% rally over the last three weeks, which just catapulted XAU/USD to an all-time high above the $2,000-price level. This recent extension higher lifts gold price action to a 33% gain year-to-date.

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The price of gold holds a strong inverse relationship with real yields, generally speaking, and underscores a primary driver of the yellow-metal’s broader direction. To that end, real yields have been crashing lower since August 2018, which just so happens to correspond with where gold prices bottomed two years ago.

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Gold’s resilience in the wake of fading fiscal aid hopes suggests that the price of Bullion may hinge on polling data ahead of US Presidential Elections in November.

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Gold prices fell for a second consecutive week as inflation expectations eased after a U.S. political shift. Despite the recent drop, XAU/USD remains over 20% higher year-to-date.

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The Federal Reserve’s first meeting for 2021 may do little to prop up the price of gold as the central bank relies on its non-standard tools to achieve its policy targets.

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Gold prices have crept cautiously higher since falling to 9-month lows on March 8, as the rapid sell-off in US Treasury markets subsided on the back of lacklustre February inflation data.

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The Federal Open Market Committee (FOMC) Minutes may drag on the price of gold as the central bank appears to be in no rush to switch gears.

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The Federal Reserve rate decision is likely to sway the price of gold as the central bank is slated to update the Summary of Economic Projections (SEP).

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Gold price action is primed for volatility next week with the Fed decision on deck. How real yields and the US Dollar react to fresh guidance from Fed officials will be key for gold outlook.

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Gold prices remain vulnerable despite a headline non-farm payrolls miss. Rising wages could mean that inflation remains high, complicating the Fed's outlook. XAU/USD eyes CPI data.

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The University of Michigan released a report on Wednesday showing consumer sentiment in the U.S. decreased by slightly less than initially estimated in the month of November. The report said the consumer sentiment index for November was upwardly revised to 67.4 from the preliminary reading of 66.8. Economists had expected the index to be upwardly revised to 66.9.

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The tug of war between market expectations and U.S. economic data continues and with Fed tightening on the horizon, will the dollar make the much anticipated push higher?

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Sovereign bond yields continue to rise while inflation expectations pullback. It’s not a good mix for gold prices.

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Data prints coming out of the US may fuel the recent advance in the price of gold as the Fed’s preferred gauge for inflation is expected to increase for the sixth consecutive month.

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There’s no two-ways about it: gold prices outperformed our expectations in Q1’22. Our rationale for not taking a bullish outlook on gold was, and still is, well-grounded: central banks, including the Federal Reserve, have begun to winddown pandemic-era stimulus efforts, with rate hike cycles just getting started.

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Gold prices charged higher for a second week as US CPI headlines charged the yellow metal’s inflation hedging appeal. However, the good times may not last. While inflation is at more than 40-year highs, forward expectations are beginning to ease. The daily chart is located above 200 SMA in the bullish market condition by crossing 1,981 bullish triangle pattern to above for the primary bullish trend to be continuing.

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US Dollar rally may see a short-term pullback on the FOMC announcement. Base case scenario (50 bps hike) could lead to a pause in the USD’s rally.

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Daily price is on strong primary bullish trend: the price is testing 103.94 resistance level to above for the bullish trend to be continuing. Alternatively, the price will be on secondary ranging within 101.34/103.94 support/resistance level waiting for the direction of the strong bullish trend to be resumed or to the secondary correction to be started.

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The US Dollar lost its footing last week as markets grew more concerned about a recession. FOMC minutes and the Fed'd preferred inflation gauge could offer the USD some life ahead.
Next week could revive some life back into the US Dollar. All eyes are on the FOMC meeting minutes, where the document will reveal further details about this month’s 50-bases point rate hike. A hawkish tone coupled with confidence in the economy could bolster tightening bets. On Friday, the central bank’s preferred inflation gauge, the PCE core deflator, will cross the wires.

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Gold prices lost upside momentum this past week as the US Dollar rallied.
Solid non-farm payrolls report underscored the Fed’s economic confidence.
Crude oil prices and May’s US CPI report may keep XAU/USD pressured.

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Gold is on course for a weekly loss for the first time in 4-weeks as rising global yields and a surging USD continues to weigh on the precious metal.
The daily price is on secondary ranging within 1879 resistance level for the primary bullish reversal to be started and 1805 support level for the primary bearish trend to be continuing with 1786 support level as a next possible target.

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The US Dollar (via the DXY Index) will likely be reminded of the US economy’s weak growth environment in the coming days.

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