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Gold Rallied back above 1326.00 on weak USD

Market Analysis

XAUUSD, H1

Gold closed yesterday lower to $1,312.62, on a minor bout of dollar strength, which as seen the DXY advance to an eight session high.  Today however , Gold has been seen taking back losses seen since Friday, by retesting Thursday’s  highs of $1,326.00 as well. This rapid move higher by $18 , is based on US Dollar kicking lower, on Bloomberg report that China thinking of downsizing dollar assets.

The dollar has kicked lower on reports about China, which is apparently considering downsizing its purchases of U.S. Treasury bonds. A Bloomberg report citing unnamed sources is the font of the story, and there hasn’t as yet been any official confirmation or denial. There is a sub-narrative in forex markets that the dollar’s unexplained weakness from mid December through to the first week of January may have been linked to an ‘underground’ view that China is considering reducing the proportion of its mammoth foreign currency reserves held in dollars. The narrow trade-weighted USD index (DXY) is down over 0.5% on the day, and the dollar is presently showing a 0.6% loss to the euro and an outsized decline of 1.2% versus the yen, with the Japanese currency concurrently rising on the back of yesterday’s BoJ announcement that it will be tapering QE asset purchases.

This sharp bullish rally seen the last hours, touched December’s high, and ran above that, up to $1327.72, with the Weekly resistance coming at $1330.00. The pair is moving higher for a 5th consecutive week, with Weekly, Daily and even Intra-day momentum indicators, remaining positive, without reaching yet the overbought territory. The Daily RSI is at 69, slightly below the overbought territory, suggesting that there is still area for further upside momentum.

If price action remains above $1326.00 (immediate support), there is scope to test the $1330.00-$1339.00 resistance area. The $1330.00 considered to be a strong resistance area, which has been reached several times. Falling below this area and down to pivot level at $1319.00, would see prices re-test the $1306 support, which also is a confluence of 23.6% Fibonacci level on December’s rally.

If this support area fails to hold, then this suggests that bears gain the control and therefore the asset is likely to move southwards to the 38.2% Fibonacci mark at $1293.00.

However currently there is a positive view on XAUUSD.

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Andria Pichidi

Market Analyst

HotForex

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