Keep an eye on The US Dollar Bounce

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The US dollar has an upward bounce going today.  The chart above does not show today’s price move but it is near 79 right now.  It is no surprise that gold is taking a bit of a hit today. So now what?

First, before I even get into the meat of what I want to say I should tell you that there is always a bull side and a bear side to every trade, no matter what the time frame is.  There are always levels that if achieved, or if broken, can dramatically change what the outlook is. I am telling you this because there have been times when I have become extremely bullish on something, but then things started changing and key levels were broken, and I had to change my stance immediately. 

So why this talk about bull and bear side?

Because even though I do not want to admit it, there is a bull and bear side to the long term gold setup I have been talking about.  The good news is that we have parameters that clearly define each side.  The bad news is that we do not know what the outcome of the parameters will be until they actually happen.

One of the parameters I am looking at is the US Dollar Index.  Today it is close to the 79 level.  But what is key here is the trend of the US Dollar Index.  The trend has been down since early March.  The down trend is defined by that thick colored blue line.  So let me be clear here.  I do not want to see the US dollar index break out above that thick blue line in the next week or two or three.  That blue line defines the bearish situation of the US Dollar Index and I want to see the US Dollar Index fail and break down on an upward bouncing retest of that line to keep the near term bull case for gold intact.

If the US Dollar comes up to that line (near 81) and slices through it to the upside in a substantial breakout, it is going to be a problem for gold and is going to require careful analysis of the gold structure at the same time.

I wish I could tell you what is going to happen ahead of time, but I can’t. We will not know until it gets up there and a decision is made.

Posted in Forex Trading, US Dollar Index
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