Has the sharp rally in the U.S. dollar come to an end, and what does this mean for gold prices? The answers are essential for traders who are long on one of the two and short on the other. Is this a stop-and-reverse situation, meaning it's time to switch to shorting dollar and longing gold?
The rally in the greenback developed the characteristics of a significant trend change. It moved above long-term downtrend pattern and a new tentative uptrend line was calculated using the pivot point low and a major retreat and rebound point neat $0.78.The Guppy Multiple Moving Averagerelationships showed the classic trend change signals. The long-term GMMA has compressed and turned upwards.
Resistance was expected near $0.815 and a retreat from this level was expected to find support near $0.795. This is near the value of the new uptrend line and also a historical support level. The drop to $0.79 with the close near $0.795 remains in trend rebound territory with the potential to retest $0.815. The dollar index rally is shaken, but the uptrend has not yet been invalidated.
A mirror of this reaction is seen in the gold chart. A weakening U.S. dollar propels gold higher. The long-term gold trend, as defined by the long term group of averages in the GMMA, remains intact. The price retreat, which mirrored the initial rally in the U.S. dollar, found support inside the long-term GMMA.