The US Dollar gets crushed; Gold and commodity currencies bid

Yen, Euros and dollar currency bills and notes
Joe Perry
By :  ,  US Market Analyst

With the US CPI for December in-line with expectations at 7%, traders took the opportunity to unload some of their long US Dollar positions.  As mentioned earlier in the CPI recap, the DXY had been trading sideways in a range between 95.50 and 97.00 since mid-November. On the release of the CPI print, the US Dollar Index moved sharply lower and is currently testing support at the bottom, rising trendline of the long-term channel it has been in since May 2021. Watch to see if the 94.90 level can hold.  (For support and resistance levels in the DXY see the CPI recap)

20220112 dxy daily zoom ci

Source: Tradingview, Stone X

Forecasting 2022 inflation: Transitory no more?

One of the beneficiaries of a move lower in the US Dollar Index is Gold (XAU/USD), which has been in a symmetrical triangle since pulling back from its all-time highs in August 2020, near 2063.75.  More recently, the precious metal is attempting to form a double bottom near the apex of the triangle.  If the DXY continues lower, than Gold should move higher.  Before it takes out the neckline of the double bottom though, it must first pass through horizontal resistance at 1831.80.  Above there is the top, downward sloping trendline of the triangle near 1862.50.  The neckline for the double bottom is also the 50% retracement form the highs of August 7th, 2020 to the lows of March 9th, 2021, near 1876.  The target for the double bottom is near 2000!

20220112 xauusd daily ci

Source: Tradingview, Stone X

 

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Gold has been riding near the 50- and 200-Day Moving Averages for the last few months, currently at 1806.27 and 1801.62, respectively. Its tough to consider those levels support right now.  Therefore, first support is at the January 7th lows near 1782.70, then the upward sloping trendline of the triangle near 1770.  Below there, price can fall to the double bottom lows near 1758.91.

Gold outlook 2022: Will precious metals get back on track after a lacklustre 2021?

AUD/USD has a high positive correlation with Gold.  The correlation coefficient between the two assets is +0.84. A reading above +0.80 is considered strong. Therefore, if Gold continues to move higher, AUD/USD should move higher as well.  The pair has just traded above the 61.8% Fibonacci retracement level from the highs of October 28th, 2021 to the lows of December 3rd, 2021 near 0.7274.  A confluence of resistance sits above near 0.7340, which consists of the following:

  • The 61.8% Fibonacci retracement from the previously mentioned timeframe
  • The top, red upward sloping trendline of the current channel
  • The upward sloping, blue trendline dating back to August 20th, 2021.

Above there is the 200 Day Moving Average and a downward sloping trendline dating back to June 11th, 2021 at 0.7427.

20220112 audusd daily ci

Source: Tradingview, Stone X

 

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Support is at Wednesday’s low and the 50-Day Moving Average between 0.7200 and 0.7210.  Below there is the bottom, upward sloping trendline of the channel near 0.7154. If price breaks below the trendline, AUD/USD can fall back to the recent lows at 0.6991.

Are commodity currencies poised for a big 2022?

With the selloff in the US Dollar, Gold has gone bid.  If the DXY continues to breakdown below the bottom trendline of the channel it has been in since May 2021, Gold may continue higher and bring AUD/USD along for the ride!

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