How did yesterday’s bull’s weakness affect today's price?

Technical Picture of Gold

(Click on image to enlarge)

Let’s start today’s analysis with the quotes from yesterday’s Quick Gold Alert:

(…) And speaking about the bears…what could happen if the bulls fail today and do not manage to close the day inside the orange consolidation?

We’ll likely see a test of the strength of the green gap formed earlier today.

From today’s point of view, we see that although gold futures moved temporarily above the previously broken lower border of the orange consolidation the bulls didn’t manage to hold gained levels, which resulted in a pullback and a daily closure under the green gap.

Despite this negative development, gold futures started Wednesday with another pro-bullish gap ($2,326.60-$2,334) and came back to the orange consolidation.

Although this is a positive sign, the buyers were so weak that they couldn't break above yesterday’s high (not to mention the lack of strength to attack higher levels and resistances). As a result, the sellers pushed the price lower in the following hours, which suggests that we could see a repeat of what happened during yesterday's session – a test of the lower line of the gap.

Having said that, let’s check what happened at the same time with the U.S. currency.

Technical Picture of the U.S. Dollar

(Click on image to enlarge)

The first thing that catches the eye on the daily chart is Friday’s huge white candlestick, which bounced off the 61.8% Fibonacci retracement and the lower border of the green support zone (about which you could read in Quick Gold Alert posted on June 5, 2024).

Thanks to this move, the greenback not only invalidated the earlier breakdown under early Jun. lows but also closed the red gap from Jun. 3 and climbed above the short-term red declining resistance line based on previous peaks.

This bullish development triggered further improvement at the beginning of the week as the U.S. currency started Monday with the green gap (104.86-105.02), which lured even more buyers to the trading floor and encouraged them to test the 61.8% Fibonacci retracement (based on the entire May-Jun. downward move).

Despite this move, the bulls didn’t manage to close the day above this resistance, which formed a candle with a prolonged upper shadow on the chart.

Did this failure discourage buyers from fighting for higher levels?

Nope.

Instead of deepening the decline, the greenback opened Tuesday with another green gap, but just like a day before, the bulls failed to close the day above the 61.8% Fibonacci retracement. Nevertheless, thanks to yesterday’s move, the U.S. currency tested the next resistance- the red gap (105.41-105.43) from May 9.

Earlier today, we saw a third in a row higher open and the gap (105.20-105.27), but the 61.8%Fibonacci retracement effectively lured bears to the trading floor, who took advantage of the earlier visible bullish weakness and pushed the U.S. currency below yesterday's closure.

In this way, the greenback closed the gap (at least at the moment of writing these words), which doesn’t bode well for the bulls and higher values of the U.S. dollar.

What’s next?

If the bears manage to close today’s session under the lower border of the gap formed earlier today (105.20-105.27), we’ll likely see further deterioration and a test of the big green gap formed on Monday, which is currently also reinforced by the 50-day moving average.

At this point, it is also worth noting that the CCI and the Stochastic Oscillator moved to their overbought areas, which suggests that sell signals may be just around the corner. If this is the case and the greenback slips under the mentioned green gap (while the indicators generate the sell signals), the way to the previously broken short-term red declining line (which serves now as a support) could be open.

Summing up, yesterday’s closure of the gap, today’s lack of bulls’ activity, and a quite small size of the rebound in gold futures do not bode well for further rally in the yellow metal. However, as long as today’s gap remains in the cards another attempt to move higher can’t be ruled out.

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