The dollar index has broken out of the bearish flag mentioned in our report on 6th July. Prices look promising after a daily morning star appeared but last Friday’s bearish candle shattered the hope of any rally and the index is set to break the immediate support at 95.71.
Judging from the wave analysis, the final sub-wave 5 is ongoing with the critical support zone deciding the fate of the Dollar. Should the crucial support zone between 94.64-95.22 is broken, then the Dollar will form an extended sub-wave (v) with the next potential support level at 92.00.
Gold’s bullish has come a long way in line our expectation on 16th December 2019 last year. Firstly, Gold has defied all odds and broke the US$1,600 resistance level and has successfully traded above US$1,800. Should Gold continue to rally and it will due to the dollar weakness for now, the likelihood of a reversal at $1,900 is very possible.
In the longer-term period, there are two factors weighing on the direction of Gold prices. If the 1,900 level is broken, then the larger corrective ABC wave will be invalidated. The next price level Gold will target is at the 127.2% extension level of A which stands at US$2,127.58. Otherwise, if Gold fails to sustain above US$1,900, a downward wave C will commence. All in all, Gold’s monthly outlook is corrective even with the recent hype on Gold’s bullish outlook.
The daily chart of Gold shows a clear picture with upside momentum slowing as shown by the multiple candles with long shadows since Gold broke out of the range between April and July. Looking at Fibonacci extension of the price range, the recent bullish flag indicates that Gold will continue to edge higher, minimally to the 161.8% extension level. Should that level be invalidated, the next target will be at 200.00% extension level.
