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DXY with a Strong Technical Signal: EUR/USD, Gold in Trouble

DXY with a Strong Technical Signal: EUR/USD, Gold in Trouble

Talking Points

- Real yields are rising in the US, which means the US Dollar should be supported for the foreseeable future.

- Momentum in EUR/USD and USD/JPY remains in favor of a stronger US Dollar over the coming days.

- Fed funds futures pricing in a 100% chance of a 25-bps rate hike in December.

The US Dollar is on strong footing today, backed by rising Treasury yields which in turn are dragging real yields higher. As long as real yields stay elevated or keep rising, the US Dollar should fare well against lower yielding currencies like EUR/USD or USD/JPY, and Gold should remain under pressure.

Chart 1: DXY Index Daily Chart (April 2016 to November 2016)

The DXY Index bounce the past 24-hours has seen former resistance since 2015 around 100.50/60 turn into support, and it's maintained its rally above the daily 8-EMA without a close below it since November 7.

Chart 2: Gold (XAU/USD) Daily Chart (January 2016 to November 2016)

Gold isn't in good shape these days, fundamental reasons aside, as it's recently pivoted away from former swing support around 1200.00/oz. Momentum remains firmly to the downside at present time, with price holding below its daily 8-, 21-, and 34-EMAs, while daily MACD and Slow Stochastics remain in bearish territory.

Chart 3: EUR/USD Weekly Chart (December 2015 to November 2016)

There is an increasing likelihood that EUR/USD will not only reach its recent cycle low set at 1.0462 in March 2015, but will test 0.9500 by the end of 2017: the odds of EUR/USD breaking its historic streak of consolidation (without setting a new 52-week high or low) to the downside are rapidly increasing, which suggests a longer-term breakdown may be on the horizon.

Read more: FX Markets Set for Volatility as Political Risk Increases; US NFPs on Friday

--- Written by Christopher Vecchio, Senior Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.