Gold growth confirms restart of dollar downtrend

Financial markets are starting the week with somewhat uncertain dynamics. Friday's strong rally failed to develop into further buying in Asian trading on Monday while shying away from a sell-off. Judging by the indirect signs, investors paused buying but remain optimistic.

The dollar index returned to the psychologically important 90 level, waiting for new signals that will send the dollar higher or lower, as it has been doing for the last four months. A sharp pullback below 90 would signal to the broader market that the American currency is in a wide retreat and would begin a new anti-rally.

In terms of strength, it could be comparable to what we saw in 2020 when the index lost more than 11% between May and early January this year. The technical analysis suggests possible long-term targets for a new downward movement of the Dollar Index in the area between 80 and 82, the lows of 2014 and 161.8% of the amplitude of the move since last May, respectively.

The continuing pressure on the dollar is signalled by GBPUSD testing the 1.41 mark and a moderate downward movement in USDCAD and USDCNH. We often look at these pairs as an indicator of risk demand in Europe, America and Asia. They have recovered quickly from the local dollar pullback and returned to the recent extremes.

Gold gave an even more bullish signal, coming back above the 200 SMA on Monday morning and making new 4-month highs. Gold prices reached a local bottom in late March, which coincided with local peaks in the dollar index. However, gold investors are more concerned about preserving the value of fiat currencies with the major central banks' printing presses constantly running.

Not surprisingly, therefore, gold's recovery has been more robust. However, the rally above $1855 this morning has yet to be cemented by closing the day above the 200-day moving average (now at $1847).

A move higher would confirm the rebound from the two-year trendline support and allow the area above $2600 to be seen as the long-term target for a new upside momentum, well above last August's all-time highs of $2075.