Did yesterday’s sharp decline in the greenback push gold as high as it could be expected?

Technical Picture of the U.S. Dollar

(Click on image to enlarge)

Let’s start today’s analysis by quoiting the previous article:

(…) 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.

Looking at the daily chart, we see that the situation developed in tune with the pro-bearish scenario, and the U.S. currency moved sharply lower during yesterday’s session, reaching the above-mentioned downside target (just in one session!).

As you see, the bears’ attack was so strong that it took the greenback even below this support, but the combination of the 61.8% Fibonacci retracement (based on the recent upward move – marked with blue) and the 200-day moving average withstood the selling pressure and triggered a sizable rebound before the end of the day.

Thanks to this comeback, the U.S. dollar finished the session above the red declining line, invalidating the earlier breakdown, which is a positive development. Earlier today, the greenback extended yesterday’s move to the north, but the huge bearish engulfing pattern from yesterday remains in the cards – just like the sell signals generated by the indicators.

What can we expect in the coming day(s)?

Although the U.S. currency increased earlier today, it is still trading under the previously broken 50-day moving average and well below yesterday’s high and the 61.8% Fibonacci retracement, which encouraged the bears to show their claws.

Taking this fact into account and combining it with the above-mentioned negative technical factors (the pro-bearish candlestick formation and sell signals from the indicators), it seems that another attempt to move lower may be just around the corner.

How did this sharp decline in the greenback affect the price of the yellow metal?

Technical Picture of Gold

(Click on image to enlarge)

In yesterday’s article, you could read the following:

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

(…) What are the scenarios?

(…) another attempts to move higher may be just around the corner – especially when we factor in the current position of the daily indicators (…).

In this case, if the futures finish today’s session above the earlier gap and the previously broken lower border of the orange consolidation, we could see an attack on (…) the next target (…) the lower line of the green channel. (…)

From today’s point of view, we see that the bulls closed ranks and used a sharp decline in the U.S. currency to push the yellow metal higher. Thanks to their action, gold futures not only attacked the above-mentioned upside target but also managed to close yesterday’s session above it, which was a bullish signal.

Did it trigger further improvement?

Nope.

Instead of continuing its march north, gold futures opened Thursday with a pro-declining red price gap ($2,341.10-$2,354.80), which doesn’t bode well for the bulls and higher prices – especially when we factor in the fact that thanks to today’s gap the futures came back below the previously broken lower border of the green channel (an invalidation of the breakout).

Taking all the above into account, it seems that further deterioration may be just around the corner. This scenario will be even more likely and reliable if the bears manage to close yesterday’s green gap and finish the day under the orange consolidation.

Summing up, despite yesterday’s climb above the lower border of the green channel, the bulls failed and crude oil futures started Thursday with a red pro-declining gap, which not only invalidated yesterday’s breakout, but also triggered a move to the downside. Taking these facts into account, it seems that further deterioration may be just around the corner and a re-test of the recent lows can’t be ruled out.

More By This Author:

Invalidations In Gold
Key Resistances For Gold
Dollar Breakout: Can Gold Bulls Hold The Line?