Gold hesitates at its ATH, USD drifting higher towards 105: Asian Open

• The US dollar index crept higher alongside US yields on Monday ahead of Wednesday’s FOMC minutes, which saw AUD/USD form a bearish outside day after another false break of 67c
• NZD/USD also formed a bearish outside day, USD/JPY and USD/CHF rose for a third day – although the moves appear to be more on the general flow of markets as opposed to being driven by a fundamental catalyst
• It was a mixed start to the week on Wall Street with the Nasdaq 100 closing at a record high, the S&P 500 closing flat after failing to break above Thursday’s record high and the Dow Jones forming a bearish engulfing candle despite forming an intraday record high earlier in the day
• The Nasdaq was the top performer thanks to bets of another blowout earnings report for Nvidia (NVDA) on Wednesday
• Ether (ETHUSD) spiked 10% on Monday on reports that the SEC could approve spot Ether ETFs later this week, which helped Bitcoin (BTCUSD) rose over 3% and retest 70k
• Gold prices sneaked in a cheeky record high ahead of China's open on Monday. Yet as the move has not been confirmed with by a weaker US dollar, it seems have been caught a tailwind from higher metals futures on China's exchanges
• China has vowed to prohibit some US forms from importing and exporting activities to China in retaliation for the US significantly rising tariffs in some Chinese exports to the US last week

Economic events (times in AEST)

• 09:00 – FOMC member Bostic speaks
• 10:30 – Australian consumer sentiment (Westpac)
• 11:30 – RBA meeting minutes
• 13:00 - New Zealand credit card spending
• 16:00 – German producer prices
• 18:00 – US Treasury Secretary Yellen speaks

Gold technical analysis:

The left chart shows an equally-weighted gold basket of spot gold against FX majors. It aims to show the underlying of strength of gold in general, and dilute the inverse relationship between gold and the US dollar – which is the most widely followed gold market. On the right we can see the gold futures (gold/USD) reached a record high on Monday alongside higher trading volume, although it failed to hold onto gains above $2450 or the prior record high and retraced lower.

It is also interesting to note that the gold basket has stalled around $2800, just beneath its own record high set in April. A bearish divergence has also formed on the gold basket and gold futures contract, both of which are in the overbought zone.

It may be difficult to construct an immediate bearish case other than gold stalling around key resistance levels. But that can be good enough for gold bulls to take note and err on the side of caution.

We’ve already seen once false break of the April high for gold futures, so perhaps bulls may want to at least see the gold basket break to a new record high before assuming gold futures will hold on to gains. Of course, what could help with the latter case is to see the US dollar index break and hold below 104. Otherwise, another approach is for bulls to wait for a retracement before seeking evidence of a higher low for bullish swing trade at a more favourable price, in anticipation of a break to a new record high.

US dollar index (DXY) technical analysis:

In yesterday’s COT report I noted that large speculators were net-long USD index futures for a second week, and that asset managers remained predominantly net-long despite a slight reduction of bullish exposure during the dollar's retracement lower. This also comes at a time when the US dollar index is trying to hold above the key bullish trendline from the December low.

USD prices were allowed to drift higher during quiet trade on Monday. And as the 4-hour chart shows, volumes were relatively thin during the fall from 105 down to 104. Therefore, the current drift higher may simply be the market trying to head for the high-volume node around 105.20. However, 105 may make a more sensible interim bullish target due to its round-number statues, which is also near a 100% projection ratio and the 100-bar EMA.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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