Gold is currently trading at $1,323 and could rise toward the crucial 100-month moving average (MA), currently at $1,354 if the dollar index confirms a bear reversal with a close below 96.83 tomorrow.
The yellow metal picked up a strong bid Friday as the markets offered the greenback on the rising odds of a US-China trade deal.
The dollar index, which tracks the value of the greenback against majors, carved out a bearish outside-day, as seen in the chart below.
DXY daily chart
Friday's bearish outside day indicates the rally from the Jan. 31 low of 95.16 has likely run out of steam at highs above 97.30. A bearish reversal, however, would be confirmed if DXY closes tomorrow below 96.83.
Usually, the close of the day after the bearish outside candle is pivotal. However, with the US observing a trading holiday today, the liquidity will likely be thin. As a result, Tuesday's close will validate Friday's bearish outside day.
A close below 96.83 could be followed by a drop to 95.16 (Jan. 31 low). After all, the focus seems to have shifted from the Eurozone recession fears to the US-China trade optimism and the growing evidence of a slowdown in the US.
A bearish reversal in the dollar index, if confirmed, could bode well for the yellow metal. Notably, the metal is already looking north as per technical charts.
Gold daily chart
The ascending triangle breakout confirmed on Thursday signaled a resumption of the rally from the Jan. 24 low of $1,276 and has likely opened upside toward $1,259 (target as per the measured move method). Interstingly, the crucial 100-month MA is currently located at $1,254.
Supporting that bullish case is the above-50 print on the 14-day relative strength index (RSI). Further, the 5- and 10-day moving averages (MAs) are again trending north in favor of the bulls.
Gold monthly chart
As seen above, the recovery from the December 2016 low of $1,122 repeatedly failed to penetrade the 100-month MA in nine months leading up to April 2018.
The 100-month MA, therefore, is the level to beat for the bulls. A close above that average would open up upside towards $1,500.
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