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Despite yesterday’s improvement in gold, the bears attacked earlier today. What are the implications?

Technical Picture of the U.S. Currency

(Click on image to enlarge)

From today’s point of view, we see that although the U.S. currency moved a bit above the previously broken red horizontal line (based on the lower border of the orange consolidation about which you could read in previous Quick Gold Alerts) and the 200-day moving average during yesterday’s session for the second time in a row, this improvement turned out to be quite temporary and the greenback finished the day below these resistances, invalidating the earlier breakout – just like on Wednesday.

Thanks to yesterday’s drop, the U.S. dollar slipped to the space of the green gap (104.05-104.15) and closed the session slightly above its lower border (a slightly disturbing symptom). This deterioration encouraged the sellers to act earlier today, which translated into another test of the lower line of the mentioned support.

As you see, the green gap withstood the selling pressure (at least at the moment of writing these words), which triggered a reversal and a rebound in the following hours.

What’s next?

The visible weakness of the buyers in recent days doesn’t bode well for higher values of the U.S. currency. Nevertheless, an effective defense of the nearest support in combination with the current position of the daily indicators suggests that another attempt to move higher may be just around the corner.

However, in my opinion, such price action will be more likely and reliable only if the bulls finally show strength and manage to close today’s session (or one of the upcoming trading days) above the nearest resistances (red horizontal line and the 200-day moving average).

If they fail at these levels or let their opponents to close the day under the green gap, the way to Tuesday’s low or even the lower border of the green support zone seen on the chart (based on the 61.8% Fibonacci retracement and April lows) could be open.

Therefore, keeping an eye on the current levels and behavior of the market participants seems the best solution at the moment, as the outcome of today’s session could translate into another bigger upswing or downswing.

Did this price action affect gold futures?

Yes.

Why?

Because the negative correlation between the greenback and the yellow metal has started to increase in recent days, which you can clearly see on the above chart. Therefore, if this relationship maintains its current trend, higher values ​​of the greenback will translate into decreases in gold.

And speaking about the declines in gold… let’s take a closer look at the chart below and find out how maintaining the green gap in the U.S. dollar influenced the behavior of the gold futures price before the U.S. market open.

Technical Picture of Gold

(Click on image to enlarge)

Looking at the above chart, we see that although gold futures finished yesterday’s session above the upper border of the orange consolidation, the upper line of the very short-term green rising channel, and the 50% Fibonacci retracement (based on the entire late-May downward move), the red gap ($2,383-$2392.90) from May 23 remained open.

Despite this small show of weakness, the bulls didn’t give up and attacked this important resistance earlier today. Thanks to their determination, gold futures climbed not only above the upper border of the gap but also reached the 61.8% Fibonacci retracement based on the entire late-May downward move.

As you see on the chart, this resistance turned out to be a too big challenge for the buyers. The price reversed and declined sharply, invalidating not only a tiny breakout above this resistance but also the breakout above the red gap, the 50% Fibonacci retracement, the upper border of the orange consolidation and the upper line of the very short-term green rising channel, which is a strong bearish development.

At the moment of writing these words, gold futures are trading below yesterday’s opening price, which increases the probability that the bearish engulfing candlestick pattern will appear on the chart (as a reminder, its formation will be confirmed if today's close is below yesterday's opening).

Summing up, although gold futures moved higher earlier today, this improvement was only temporary, which translated into a reversal and an invalidation of the earlier important breakouts. Such price action doesn’t bode well for the bulls, suggesting that further deterioration may be just around the corner.

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