Gold Is Bucking The Trend Of The Dollar

Markets have calmed down today after yesterday’s staggering post-Fed moves, but many traders are still trying to catch their breath. The more forward-looking traders who were able to capitalize on the dollar’s momentary weakness are sitting pretty today: EURUSD has fallen over 400 pips from yesterday’s peak, GBPUSD is once again trading lower on the week, and USDJPY is back pressing against its 7.5-year high near 121.80. It’s too early to say conclusively whether yesterday’s price action was just a momentary setback for the dollar or the beginning of a more substantial pullback, but the initial evidence points to the former.

One subset of the market has been bucking the reversal in the…buck: commodities. After spiking yesterday, both gold and oil are holding up relatively well today. My colleague Fawad Razaqzada covered the outlook for oil already (see “Crude Recovery Unlikely to Last” for more), but gold’s performance so far today has been even more impressive. With the trade-weighted dollar index rallying back over 2% from yesterday’s lows, gold is essentially unchanged at 1170, an impressive relative performance for the dollar-denominated commodity.

Of course, gold remains within its 2-month bearish channel, so bulls should temper their enthusiasm, but there are some signs for near-term optimism if Gold can break out above 1180. For one, the MACD is crossing above its signal line for the first time since the downtrend began in mid-January. Meanwhile, the RSI indicator has already broken above its corresponding bearish channel, providing a potential leading indicator for a possible breakout in the price of the metal itself.

If we do see gold break out of its bearish channel next week, the yellow metal may target the Fibonacci retracements of the 2-month drop at 1205 (38.2% or even 1245 (61.8%) moving into Q2, especially if the greenback sees a more meaningful correction. On the other hand, a reversal off the top of the channel may take prices down to test the five-year low at 1130. Time will tell if gold can continue to buck the trend in the buck.


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