Gold vs The USD

January 16, 2014

The XAU/USD pair (Gold vs. the American dollar) fell two days in a row as some investors continued to cover their long positions after the latest reports released from the Unite States fuelled expectations that the Federal Reserve will continue trimming monetary stimulus at this month’s meeting. According to the Fed’s Beige Book “The economic outlook is positive in most Districts, with some reports citing expectations of 'more of the same' and some expecting a pickup in growth”. A separate report released by the Federal Reserve Bank of New York showed that manufacturing activity in the region climbed to 12.5 from 1 a month earlier.

Usually gold tends to gain during times of uncertainty, as investors see a heightened need for disaster insurance. The dollar strength and perception that the major stock markets will continue to rally are limiting the shiny metal's gains.

From a technical perspective, there are two things to pay close attention. First of all, the pair has been following a bearish channel since around the end of August when it peaked at 1433.70. The next thing is the broader directional bias will remain weighted to the downside while trading below the Ichimoku clouds on larger time frames. The Ichimoku cloud on the daily chart indicates an area of resistance and when the cloud coincides with another form of resistance, they can be quite powerful.

Because of that, the bulls have to break out of the channel and climb above the 1286 level in order to reverse the medium-term trend. In the meantime, the key levels to watch will be 1245 and 1235. I think it is probable that prices will continue to fall unless the bulls push prices back above the 1242/5 area. Breaking below the 1235 support would suggest that the bears will be aiming for 1225 next. If they capture this strategic point, look for 1218.59 and 1213. Beyond 1245, there will be hurdles in the way such as 1255 and 1268.

(Courtesy of   FX Academy Market Analysis )

Alp Kocak has been trading Forex since 2003. He writes technical analysis based on Japanese candlesticks and Ichimoku Kinko Hyo. Alp is a senior educator at FXAcademy.com, and in this capacity, he contributes valuable analysis to multiple Forex websites including FXStreet, Market Oracle and Forex Crunch.

Gold is found in nature in quartz veins