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Gold, Silver Rebound Risk with Help of Bearishly Postured USD Heading into FOMC

Gold, Silver Rebound Risk with Help of Bearishly Postured USD Heading into FOMC

2017-03-15 09:04:00
Paul Robinson, Currency Strategist
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What’s inside:

  • US Dollar Index (DXY) has a bearish sequence in place ahead of FOMC
  • Silver resistance in the low 17s
  • Gold resistance clocks in right around 1217

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The US dollar looks at risk today with the FOMC rate hike all but a certainty, and barring any ultra-hawkish language from the Fed sellers may show up as they did on NFPs. Looking to the techs, the set-up for a drop in the dollar is there. The US Dollar Index (DXY) chopped higher from early February, and while the trend was sloppy, it nevertheless was an uptrend difficult to fight with the sequence of higher lows and higher highs; that is until the recent double-top and drop. The decline off the 3/9 high saw the DXY undercut the lower trend-line off the 2/3 low and create a lower low from the 3/6 swing low. The subsequent bounce to start the week has so far turned out to be only a retest of the broken trend-line, and furthermore could be the first lower high in a developing sequence of lower lows, lower highs (downtrend). Not positioned well heading into today's announcement.

DXY: 4-hr

Gold, Silver Rebound Risk with Help of Bearishly Postured USD Heading into FOMC

Created with TradingView

Typically, we view precious metals in a bubble for the most part with one eye on the US dollar, but given the potential for a sharp move coming up – it is unlikely we won’t see a notable contra-move in precious metals to USD if this is the case. The one-week and one-month correlation between gold/silver and DXY are a solid -64% and -48%, respectively.

Broadly speaking, as we said on Monday, silver and gold prices look vulnerable to further weakness and that any strength in the near-term will be viewed as corrective. But we need to see how the correction, if in fact that is all it is, plays out first...

Looking to silver, the low 17s is a formidable area (as it was on Monday), so in the event we see a larger rebound form on material dollar weakness, we will take interest in how the metal handles this area on another test. We’re looking to 16.64 as the next level of support.

Silver: Daily

Gold, Silver Rebound Risk with Help of Bearishly Postured USD Heading into FOMC

Created with TradingView

Gold price resistance is pegged at around 1217 (former support turned resistance). Support comes in down at 1180.

Gold: Daily

Gold, Silver Rebound Risk with Help of Bearishly Postured USD Heading into FOMC

Created with TradingView

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---Written by Paul Robinson, Market Analyst

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

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