• Gold could be on the verge of a significant move to the upside. 
  • Fed week is a major risk for the US dollar and US yields could be on the verge of a technical meltdown.

 This is going to be a critical week for both the US dollar and precious metals, with gold taking the spotlight in that space. The bulls have had a good run at the start of this year as investors questioned whether real rates can rise enough to really hinder the yellow metal's appeal.  

For the week ahead, investors will be able to generate more clues in this regard. The Federal Reserve's interest rate decision, the Federal Open Market Committee's statement and the Fed chair's press conference are expected to be impactful. 

With four interest rate hikes already priced into the markets, the focus on the Fed's balance sheet at Wednesday’s meeting could well see a shift in the pricing of the Fed's terminal rate. If this were to decline or even reverse, then the market's long positioning in gold would be expected to increase, boosted by a decline in the US dollar, albeit a modest one. 

With that being said, traders will need to pay close attention to US Gross Domestic Product and especially the fourth quarter Employment Cost Index on Friday. That is to say, investors will be keen to see how the inflationary effects are making their way through into the labour market. 

Meanwhile, the technical outlook is building more and more bullish by the day in gold, but the reluctance in the dollar to stay down has to be taken into consideration. On the other hand, the 10-year yield's weekly chart is a compellingly bearish scenario as follows:

US 10Y, weekly chart

What is being shown here is a W-formation. This is a reversion pattern that has a high completion rate on a fractal basis, meaning all time frames. The price tends to retrace back to the neckline of the formation, or, in the case of an overextended W, such as above the price tends to revert back to the old structure and confluence levels. In this scenario, the 38.2% Fibonacci aligns with the prior highs around the 1.70s%.

DXY, daily chart

However, when taking into account the US dollar's recent performance, it is hard to make a bearish conclusion when the bulls are in charge and holding the price above the 95.40's. Despite the drop below the long-term daily support in the 95.50's, the price has shot back into the sideways channel.

On the other hand, there is some resistance being seen here and Wycoff enthusiasts might term the price drop as the breakout of a phase of distribution. What we could be seeing here is merely the retest in a low volume rally before the markdown, aka a much lower low. The weekly chart is compelling in this regard:

We are seeing a retest of the distribution zone's lows which could lead to a markdown towards old highs near 94.50 and then a retest of 92 on the longer-term outlook. 

Gold daily chart

As per last week's analysis, Gold, Chart of the Week: Bearish confluences below $1,830, the price of gold was held up at the daily chart's W-formation's neckline:

After 50% mean reversion, the price has penetrated the critical resistance instead of revisiting the trendline line support and that could be significant for the path to the psychological $1,850 mark for this week's open. 

The price has just made another 50% mean reversion:

While some deceleration of the price's correction and sideways consolidation into the critical Fed event this week could be in order, should the support hold, then a burst through $1,850 would be expected to see the bulls in good stead towards the $1,870's as last major defence for the $1,900s:

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD jumps towards 1.0600 as USD wilts amid risk rebound

EUR/USD jumps towards 1.0600 as USD wilts amid risk rebound

EUR/USD is trading back above 1.0550, resuming its recovery towards 1.0600 in the European session this Wednesday. The US dollar is falling as the risk rebound extends, despite looming recession fears. ECB Forum, US Durable Goods and Fedspeak eyed. 

EUR/USD News

GBP/USD extends gains above 1.2300 amid weaker USD, Brexit news

GBP/USD extends gains above 1.2300 amid weaker USD, Brexit news

GBP/USD is extending the advance above 1.2300 in European trading, The risk-on mood dents the US dollar's safe-haven appeal while the UK presses on with changes to the Brexit deal despite EU opposition. Key US data awaited. 

GBP/USD News

Gold bulls aim for $1,850 on Russia news, softer USD

Gold bulls aim for $1,850 on Russia news, softer USD

Gold Price extends Friday’s recovery to $1,836 ahead of Monday’s European session. The precious metal’s upside moves could be linked to the softer US dollar, as well as chatters surrounding a ban on gold imports from Russia.

Gold News

What’s next after cryptos meet stiff resistance

What’s next after cryptos meet stiff resistance

Bitcoin price has shown incredible resilience after its massive crash in the second week of June. Since then BTC has produced considerable gains over the past week and the start of a new week brings the promise of even higher returns.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures