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Could FX Market Signal Upward Move in Gold?


It is important to use multi-asset analysis for ongoing clues to movement.

Christopher-LemieuxSMBullion.Directory precious metals analysis 13 October, 2014
By Christopher Lemieux

Senior FX and Commodities Analyst at FX Analytics

The foreign exchange market could be signaling an upward move for gold. The US dollar/Swiss Franc (USDCHF) is a proxy for the US dollar index (DX), thus the currency pair has an inverted relationship with gold. And it seems as the dollar has hit an inflection point as mentioned previously. 


Market participants look at the US dollar as a “safe haven.” A safe haven backed by a $17 trillion dollar deficit.

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Nevertheless, we must take into account that the Federal Reserve is now looking to weaken the dollar in order to spur inflation (a plus for gold). Fed Chair Janet Yellen said it herself, and the FOMC minutes signaled that policy will continue to accommodate. Don’t fight the Fed, right? This was the moniker going back into the unrealistic rise in equities.

Well, it goes both ways. The BoE, BoJ and ECB have taken a steady path of talking and printing their respective currencies lower. This plays into a bullish case for gold.

The intraday chart on USDCHF is showing weakness underneath a descending trend line created from the high, while gold prices look to have developed an ascending trend in relation.

Gold prices are seeing minor resistance at current levels, but price appreciation is on the verge of breaking through a wedge; and, this could ignite more upside in the short-term.

If price action cannot close above the USDCHF resistance, gold will trend higher.

The USDCHF will see demand zone lower at .9470/90. Resistance in gold is found  at $1,236. A close above these levels will target the 50-day EMA for the next upside target.


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