Over the past two weeks both Gold and the US Dollar have headed higher. the former off an important test and support level near 458; the latter broke out of a significant consolidation.
Gold
US Dollar Index – Daily
Where’s the US dollar headed, and by proxy, gold? Normally the two do not move strongly in the same direction, which tells us to expect a reversal in the rally of either gold or the greenback. Which will it be? Lets look at some major currencies to see if there are any signs of foreign currency strength against the US dollar. In roughly descending order of US dollar strength (remember, when the symbol pair starts with USD, rising price equals USD strength, and the reverse is true when the symbol pair ends with USD):
USDJPY – a very strong trend here may be approaching an extreme, as ADX is edging near the point where we will expect at minimum a significant pull-back on profit taking, if not an outright reversal in the trend.
GBPUSD – flip the chart upside down and you can better appreciate the breakout the USD has made against the GBP.
EURUSD – likewise, a head and shoulders pattern is in play here, triggered a couple of weeks ago, and price is at the do-or die point where acceleration of the current trend, or a complete reversal, are likely to occur.
In the case of both the Pound and Euro, interest rate increases are the wild card – the ECB in particular has held rates steady for a very long time, due to weaker economic performance. Should economic activity or inflation appear to be on the rise, rate increases will again return as an influence in the direction of the Euro.
There is, however, right now a potential reversal scenario shaping up as the Euro consolidates following a breakout below the range immediately overhead:
EURUSD
USDCAD – after hitting multi-decade highs against the USD in early October, the Canadian dollar has weakened along with oil prices over the past six weeks, but as oil and gas recover, so might the CAD.
Conclusion:
US Dollar Index – Weekly
For the time being, retracements in the USD have to be looked at as buying opportunities, with the one exception noted above with respect to the Euro.
Economic data continues to suggest the Federal Reserve will continue to remove policy accomodation – rate raises – into next year, and until the prospect of rate increases becomes believable in Europe, the Euro is likely to continue trending down.
Keep your eyes on the chart – forex markets rely heavily on technical analysis – much more so than equity markets, so we may be looking to change from a positive bias on the US Dollar to negative in the coming few weeks if a pull back in the USD Index breaks back below the range highs marked, and the Euro follow through with a trend reversal as marked up on the chart. Gold too may be moving up in advance of an expected pull-back in the USD. Interesting times…
05.11.17 10:58 #