Where is Gold headed Watch the DXY to help determine direction
Where is Gold headed? Watch the DXY to help determine direction!
The Scenario: Its FOMC day. Gold (XAU/USD) is pulling back, down roughly $60 from its recent highs on June 1st near 1917.39 and is trading near 1856. The FOMC releases there June statement and growth and inflation forecasts: HAWKISH! Gold crashes! Price moves from 1859 down to 1803 and continues to fall the next day to 1767!
But price has halted there and has been held up by strong horizontal support at 1756.26 dating back to March, as well as, the 61.8% Fibonacci retracement from the lows of March 31st to the highs of June 1st, near 1769.37. On a 240-minute timeframe, the RSI has unwound from oversold territory, however, is still putting in lower highs. For bulls to gain control, a move above the recent June 18th highs of 1797.25 would be required.
Source: Tradingview, City Index
On a daily timeframe, XAU/USD has pulled back to the 50% retracement level from the March 2020 lows to the August 2020 highs near 1763.19. In addition, the 1756 level has acted as strong support and resistance going back to May 2020. The RSI on the daily timeframe has just turned up from oversold conditions and is barely neutral at 34.23. For bears to gain control, they would need to push Gold below the 1756 level.
Source: Tradingview, City Index
At the bottom of the chart above is the correlation coefficient between the XAU/USD and the US Dollar Index (DXY). Notice the reading is -1.00 on the daily timeframe. This means that there is a PERFECT negative correlation right now between Gold and the US Dollar. So, if one goes up, the other goes down! Therefore, traders can also look at a daily chart of the DXY to get a better idea of what direction Gold may be headed next.
Learn Everything you need to know about DXY
On a daily timeframe, DXY retraced, and closed above, the 61.8% Fibonacci retracement level from the highs of March 31st to the lows of May 25th. However, on Monday, the index reversed and closed back below Friday’s open and gave back all its gains. Strong support is down near 91.50, which is the 200 Day Moving Average and previous resistance (now support). It was also the 50% retracement from the previous mentioned timeframe. Support below there is 90.90.
Source: Tradingview, City Index
Therefore, if the DXY does continue lower on a daily timeframe and can take out the 91.50 level, Gold should go bid. However, if DXY trades above Friday’s highs of 92.40, Gold should continue moving lower and take out the 1756 level. Watch Gold in the short-term 240-minute timeframe for more direction as to where the precious metal may be headed next!
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