Dollar Market Outlook: Something Strange Is Afoot

Are Gold And The Dollar Moving In Tandem?

Because it sure looks that way to me. What is usually an inverse trade has now set up to move in the same direction. Gold, a dollar denominated asset and one long-used as a hedge against inflation, typically moves counter to the dollar. When the dollar gets stronger it can buy more gold and gold gets weaker; when the dollar gets weaker it can buy less gold and gold gets stronger. This is the underlying, fundamental assumption of most market participants and one that usually works to a T.

But not now. Now, because of the COVID-19 pandemic and the massive global recession caused by the shut-down, investors are flocking to U.S.-backed and safe-haven investments of any kind. The dollar, despite record amounts of FOMC stimulus and the easiest money-policy we’ve ever had, is poised to move higher. Gold, already trading at long-term highs, is consolidating below a resistance point where it looks a new-all time high is only a matter of time.

The Dollar Outlook- Bullish

The Dollar Index DXY looks pretty bullish to me. The weekly charts show an index consolidating within a range and showing clear signs of support. Support has recently begun to move higher, now at and above the short-term moving average, which is the first indication a rally is forming. The indicators are both bullish as well, supporting the idea of upward momentum and bullish market dominance, and they both have plenty of room to move higher. The risk is in the resistance target at/near the top of the trading range. If the index fails to move above this level and sustain it hopes for a rally will fail with it.

The Gold Outlook – Bullish

Gold prices have had a strong underlying bid since begore the pandemic began, that bid gained strength during the peak of the panic and now has the action just below the all-time high. The most recent moves smack of rally and consolidation leading to continuation of the underlying trend. With price action on the move, rising from the short-term moving average and supported by the indicators, that continuation may have already started. The first target for traders to watch out for is the $1760 level, if gold moves above that a retest of the all-time high is the most likely outcome … and then some new all-time highs.