The Dollar Index is extending its
advancing streak today into its eighth consecutive session. It is at its best level since just before
Trump's inauguration. It has retraced 38.2% of its decline from the
January 3 high of 103.82. That retracement was found a little below 101.
The 50%
retracement objective is a hair above 101.50, while the 61.8% objective is found near 102.07. The five-day average crossed above the 20-day moving
average before the weekend for the first time in over a month. Technical
indicators such as the RSI, MACDs and Slow Stochastics confirm a constructive
technical backdrop.
Gold and the
Dollar Index tend to move in opposite directions. In fact, over the past 100 sessions, the two have an
inverse correlation of -0.93. Although the correlation has softened a
little, over the past 60 days, the correlation is about -0.81.
Gold, as this Great Graphic created on Bloomberg illustrates, has
been moving higher since shortly after the Fed hiked rates in the middle of
December. Those gains carried the precious
metal 10% higher and came within a couple of
dollars of a 50% retracement of the decline from last year's high (recorded in
July near $1375.45). That high of almost $1245 also was less 1% from
completing the 61.8% retracement of the sell-off since the US election early
last November.
Gold's
technical tone has weakened. The RSI did not confirm the push to
new highs last week, leaving a bearish divergence in its wake. The MACDs
are about to cross lower, and the Slow
Stochastics are also curling over. A move below the $1214-$1216 area,
where the 20- and 200-day moving average converge would be the preliminary
signal. The Fibonacci retracements are found near $1197.50, $1182.95, and
$1168.35. However, if our assessment is correct, a return to last
December's low near $1121 should not be ruled out.
Disclaimer
What is Good for the Dollar is Bad for Gold
Reviewed by Marc Chandler
on
February 13, 2017
Rating: