Breakouts in greenback pushed the yellow metal under Monday’s gap. Can we trust this move?

The U.S. Dollar – The Current Outlook

The first thing that catches the eye on the daily chart is the breakout above the 50-day moving average and the short-term red declining resistance line based on the previous peaks.

Thanks to this move, the greenback also moved above the upper line of the orange consolidation, which suggests that further improvement should not surprise us – especially when we factor in the buy signals generated by the indicators.

However, please keep in mind that the above-mentioned developments could be consider as bullish if we see a daily closure above all these resistances. Additionally, not far from current level, the buyers will have to face the 38.2% Fibonacci retracement, which will verify their strength and willingness to fight for higher levels.

What are the scenarios?

If the bulls win here, the way to 105.38-105.46 (the resistance area based on the May 14 peak and the 61.8% Fibonacci retracement) will likely be open.

On the other hand, if the buyers fail to close the day above all the mentioned resistances, we’ll likely see a comeback to (at least) the lower line of the orange consolidation (104.28).

What impact can individual scenarios have on the gold price?

Before I answer this question, let's check what consequences the above-mentioned breakout had for the yellow metal so far.

Technical Picture of Gold

Looking at the daily chart, we see that although gold futures moved a bit higher, the red gap ($2,431.35-$2,438.50) created yesterday encouraged the sellers to act once again.

Thanks to their action, the price reversed and slipped under both nearest important supports: the green gap ($2,417.40-$2,423.15) from Monday and the upper border of the upper border of the purple rising trend channel.

These are negative developments, which suggest that further deterioration could be just around the corner – especially when we take into account the sell signal generated by the Stochastic Oscillator.

Nevertheless, similarly to what I wrote earlier in the case of the U.S. currency, these circumstances will turn into strong bearish allies if the sellers manage to close the day under both supports.

Why?

Because we’ve already seen similar price action during yesterday’s session. Back then, the buyers closed their ranks and triggered a rebound, which caused an invalidation of the breakdowns under mentioned levels.

Therefore, caution in this area seems justified – especially when we take into account the current situation in the 4-hour chart.

From this perspective, we see that although the price moved lower and re-tested the lower border of the orange consolidation and the 23.6% Fibonacci retracement, gold bulls triggered a rebound, which invalidated the earlier breakdown (just like yesterday).

Therefore, I believe that yesterday’s comment is up to date also today:

(…) the futures are currently trading inside the orange consolidation, which suggests that only a successful breakdown under the lower line of the formation could translate into a bigger move to the downside.

At this point, it is also worth noting that the sellers tested the mentioned border of the consolidation earlier today, but they failed, which resulted in an invalidation of the tiny breakdown and formed a pro-growth hammer.

Taking these facts into account and combining it with the above-mentioned supports (the green gap, the upper line of the purple rising trend channel and the 23.6% Fibonacci retracement), it seems that the way to the south is not as wide open as it might seem.

In other words, the bulls may close their ranks here and regain lost points (…)

Therefore, in my opinion, keeping an eye on the mentioned key support/resistances (both in the greenback and the yellow metal) is crucial at the moment of writing these words as it will help indicate the direction of the next bigger price move.

Summing up, although gold futures moved lower earlier today, the overall situation hasn’t changed much as they remain in the very short-term consolidation, and the size of the correction is still quite small (seen more clearly on the 4-hour chart). Therefore, in my opinion, another move to the downside will be more likely and reliable if the bears manage to close the green gap and invalidate the earlier breakout above the upper line of the purple rising trend channel marked on the daily chart.

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