USD Strength Cloaking Gold’s Shine

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USD Strength Cloaking Gold's Shine

USD-Strength; FOMC: This week, the USD got back its groove and strengthened across the board, especially after the FOMC statement, which essentially reaffirmed the Fed’s intent to raise rates by mid-2015. Meanwhile, gold price (xau/usd) has been consolidating and drifting lower since making a December high at 1238.25 last week.

USD strength is keeping gold from rallying, but the fact that the precious metal is still trading around 1200 shows that it has some resilience and that if not for USD-strength, gold would probably be bullish, but is instead neutral.

Gold (XAU/USD) 4H Chart 12/19
gold 4h chart 12/19
(click to enlarge)

Consolidation: When we look at the 4H chart, we can even say that gold is slightly bearish. The neutral component is reflected by price trading in the middle of the SMA cluster and near the middle of December’s price range. However, the RSI is showing a slight bearish momentum bias.

Breakout Scenario: Now, a break above 1215 would revive the bullish outlook as it would clear the SMAs, and push above a falling consolidation resistance line. If the 4H RSI pushes back above 60, it would also reflect removal of this 2 weeks’ bearish momentum. In that scenario gold will be poised to test the 1235-1240 area again.

A break above 1240 will be needed to introduce the bullish outlook. Right now, it looks like it wants to, but is restrained by USD-strength.

Gold (XAU/USD) Daily Chart 12/19
gold daily chart 12/19
(click to enlarge)

The daily chart reflects a market at the crossroad. While there is a strong price bottoming attempt, the technical condition is still bearish with price holding below a falling trendline and the daily RSI holding below 60, showing maintenance of bearish momentum. Again, a break above 1240 will be needed to extend the current outlook.

The monthly chart shows a possible bullish reversal candlestick combination during a 3-pt bullish divergence. From a long-term perspective, this is a very early and possibly premature sign of a reversal or bullish correction. Still, if evidence builds, like a break above 1240, the bullish correction scenario will have good chance to develop.

Gold Monthly Chart 
gold monthly chart 12/19
(click to enlarge)

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.