Gold Price Forecast: Indecisive market at the mercy of US dollar

Gold is about to end the week on a flat note, having clocked a high and low of $1,212 and $1,187, respectively.

Essentially, the yellow metal has charted a doji candle on the weekly chart, which indicates indecision in the markets. This lack of clear direction is not surprising as gold's biggest enemy - the US dollar - is trapped in ranges on trade wars and risk-on-risk-of. 

For instance, the dollar index (DXY) witnessed an inverse head-and-shoulder breakout yesterday, only to trap the bears on the wrong side of the market, by rising back to 95.00. The USD seems to have picked up a safe-haven bid on US' decision to widen tariffs on Chinese goods by $200bln. 

The metal could continue its struggle for direction next week unless the USD sees a decisive move in either direction. 

Key price action during the week

Failed breakout: The falling wedge breakout witnessed on Wednesday had signaled a resumption of the rally from the recent low of $1,160. However, the yellow metal ran into offers around 50-day moving average (MA) yesterday and has fallen back inside the falling wedge, neutralizing the bullish outlook.

Rejection at 50-day MA: The descending (bearish) 50-day MA is the level to beat for the bulls as it acted as a stiff resistance this week, killing the bullish move set in motion by the falling wedge breakout.

Bollinger band squeeze: The gap between the Bollinger bands (standard deviation of +2, -2 on 20-period MA) has narrowed to three-month lows on the daily chart, meaning the daily volatility is at its lowest since mid-June. An extended period of low volatility usually paves way for a violent breakout (bullish/bearish). As a result, it seems safe to say that the yellow metal could soon witness a big move. Note that the direction of the breakout depends on the next big move in the dollar index.

Technically speaking, a close next Friday above this week's doji candle high of $1,212 would signal a revival of the rally from the August low of $1,160 and could yield a stronger rally above $1,236 (December 2017 low).

On the other hand, a re-test of $1,160 could be on the cards if the metal ends below $1,187 next Friday, adding credence to the failed breakout seen this week.

To cut the long story short, the focus is on the next week's doji candle. 

Weekly chart

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