Gold hit a new high. What was the U.S. dollar's reaction and what can we expect next?
Technical Picture of the U.S. Dollar
Let’s start this section with the long-term chart.
Looking at the monthly chart, we see that the U.S. currency is currently trading in a quite narrow range inside the triangle (marked with blue dashed lines).
As you see, although the bulls pushed the greenback slightly above the upper line of the formation in May, this improvement was very temporary. The buyers didn’t manage to hold gained levels, which translated into a reversal and a comeback below this important resistance line, invalidating the earlier tiny breakout.
This negative development lured the bears to the trading floor, which resulted in a decline and a monthly closure inside the triangle (a bearish sign).
In the following month the bulls tried to push the U.S. dollar above the formation once again, but just like in May, the upper border of the triangle stopped them, triggering another downward move earlier this month.
As a result, the greenback slipped under the last month’s opening price, approaching the June’s low of 103.48.
Will we see further deterioration?
When we take a closer look at the indicators, we clearly see that the Stochastic Oscillator generated a sell signal, giving the bears a reason to act.
If this is the case, the first downside target will be the above-mentioned June low. However, considering the buyers’ weakness seen in the previous months (a lack of strength to break above the upper border of the long-term triangle), it seems that we could see a breakdown under this support and attack on the lower border of the triangle in the coming month(s).
Do the bulls have any allies in the medium term who can thwart the bears' pro-fall plans?
Let’s analyze the weekly chart to find out.
The first thing that catches the eye on the chart is breakdown under the medium-term green support line (which serves now as an important resistance) based on the late 2023 and 2024 lows, which took place at the beginning of the month.
This bearish development triggered further deterioration, which took the U.S. currency not only under the 500-weekmoving average, but also below the 38.2% Fibonacci retracement based on the entire Dec.-Apr. upward move.
Thanks to this price action, the bears also invalidated the earlier small breakout above the upper border of the orange consolidation, which resulted in a breakdown under the lower line of the formation (based on the mid-May low of 103.97) in the previous week.
What does it mean for the currency?
Further deterioration and a slide even to 102.56, where the size of the downward move would correspond to the height of the formation. Nevertheless, before the bears can celebrate at this level, they will have to beat the support area based on the early Jun. low of 103.48 and the 50% Fibonacci retracement (at around 103.32).
However, if these supports fail, the way to the above-mentioned target and the 61.8% Fibonacci retracement could be open. At this point it is also worth noting that slightly below them the bulls have one more support – Mar. 2024 lows.
Before we move to the short-term picture of the U.S. dollar, please note that the sell signals generated by the CCI and the Stochastic Oscillator remain in the cards, supporting the sellers and further deterioration.
So, let’s take a closer look at the daily chart and check what does it say about the next move.
From this perspective, we see that the greenback reached the green support zone based on the previous lows. Additionally, this area is also reinforced by the pro-bullish hammer candlestick from Jun.7, which, in combination with the current position of the daily indicators, suggests that reversal might be just around the corner.
Nevertheless, taking into account the breakdown under the 61.8% Fibonacci retracement (we didn’t see such price action at the beginning of the Jun. when the mentioned hammer was formed), the unsuccessful attempt to come back above the previously broken 200-day moving average and the bulls’ failure while trying to close the red gap (104.13-104.04) from Jul.12, it seems that another attempt to move lower seems very likely.
If this is the case and the bears manage to push the U.S. dollar under the lower border of the green support zone, we’ll see an attack on the hammer and an attempt to neutralize it in the coming day(s).
If sellers are strong enough to go below the low of this candlestick formation (at 103.48), the road to the next support zone around 103.17-103.25 (based on the c marked with blue) will likely be open.
Summing up, thanks to yesterday’s breakouts, gold bulls opened the way to the next resistance zone. The bullish scenario will be even more likely and reliable if the bears manage to push the greenback under the nearest supports, opening the way to the 76.8% and the 78.6% Fibonacci retracements. Nevertheless, please keep in mind that the current position of the daily indicators in gold and the greenback suggests that the space for increases might be limited, and reversal soon should not surprise us. Stay tuned.
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Anna Radomska