Thu, Sep 29, 2022 @ 08:14 GMT
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Gold Falls Below $1650 as US Dollar Soars

On the back of fresh data via the PMI flashes out of the EU and UK, which showed that both economies are in contractionary territory, the EUR/USD and GBP/USD are trading lower on the day. As a result, the strength of the US Dollar continues, and therefore, is leading to a weaker price in Gold. In the EU, more interest rate hikes are coming, and fears are increasing that they will push the economy into a recession. Today’s PMI report supports that view, with a Composite Flash reading for September of only 48.2. As for the UK, the Composite Flash reading was 48.4, also below the expansion/contraction level of 50. Again, with fears of more interest rate hikes on the way, traders are nervous about an impending recession. Both the Euro and Pound are trading lower vs the US Dollar, and therefore pushing the US Dollar Index to higher levels. As a result, Gold is plummeting.

Gold (XAU/USD) has been moving lower since forming a double top during the week of March 7th, near 2075.11. Since then, the precious metal has moved lower in a descending channel. Last week, Gold broke below the 1670/1680 support level, which it had held the previous six times it was at those levels. The break of this important support level is also the break of the neckline for the double top. The target for a double top is the height from the double top to the neckline, added to the breakdown point at the neckline. In this case the target is near the May 2019 lows of 1266.35.

Source: Tradingview, Stone X

If Gold continues to move lower, the first support level will be the 50% retracement level on the weekly timeframe from the lows of August 2018 to the highs of August 2020 at 1617.68. Just below, support is at the 161.8% Fibonacci extension from the lows of July 21st to the highs of August 10th at 1502.49, followed by horizontal support dating to the week of March 30th, 2020 at 1567.58. However, if Gold traders decide to take the precious metal higher, the first resistance is at the previous support of 1670/1680. This also corresponds with the top trendline dating to March 8th. Above there, Gold can move to horizontal resistance at 1735.21 and then they August 10th highs at 1807.91.

Source: Tradingview, Stone X

With the weaker PMI data out of the UK and the EU, recession fears are causing both GBP/USD and EUR/USD to move lower. As a result, the US Dollar is moving higher. This leaves traders nervous to buy the dip in Gold as it moves to its lowest level since April 2020. Will it continue? The break of the neckline of the double top targets 1266.35. It still has a long way to go, but it’s possible!
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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