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 $1,375.45). That high of almost $1,245 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 $1,214-1,216 area where the 20- and 200-day moving average converge would be the preliminary signal. The Fibonacci retracements are found near $1,197.50, $1,182.95, and $1,168.35. However, if our assessment is correct, a return to last December's low near $1,121 should not be ruled out.
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