Current situation in U.S. dollar and non-USD gold price

In the previous week the Fed surprised markets when it decided to stick with its massive stimulus measures. However, in the following days some officials said that the U.S. central bank could still begin tapering later this year. Since then, markets are no clearer on when the Fed will eventually taper its stimulus.

From today’s point of view, it seems that this uncertainty over tapering has kept the price of gold in its narrowest range since the June bottom. Since the August low the yellow metal has been trading between $1,271 and $1,434.

Yesterday, investors received mixed economic data, which fuelled persistent uncertainty over the outlook for U.S. monetary policy and gave conflicting signals on the health of the economy. According to Reuters, contracts to buy previously owned U.S. homes fell for the third straight month in August but fewer Americans filed new claims for jobless benefits last week.

What impact did the above have on the yellow metal? Gold lost almost 0.7% and dropped below $1,330 an ounce. It seems that buyers keep on the sidelines, although wrangling over the U.S. budget supported prices and pressured the dollar.

Speaking of the greenback… Yesterday, after economic data was released, the dollar rebounded and climbed above 80.76 on an intraday basis. However, it was up by only 0.29% - not a strong bullish reaction. If a given market is supposed to react somehow, based on some important information, but doesn’t, it’s a sign of either strength or weakness – the latter in the case of the USD Index. So, has the outlook for the USD Index changed since our previous essay was posted? Will the dollar recover quickly? What impact could it have on gold?

Today, we’ll examine the US Dollar Index once again (from many perspectives) and take a look at charts of gold priced in other currencies to see if there’s anything on the horizon that could drive gold prices higher or lower in the near future. We’ll start with the short-term USD Index chart (charts courtesy by http://stockcharts.com)

On the above short-term chart, we see that the USD Index remains between the support line based on the June low and the resistance line based on the September highs. Therefore, we will probably see a breakout or a breakdown in the near term. If there is such action, a bigger move to the upper or lower border of the declining trend channel is quite probable. Because of this uncertainty, the downside target area has been modified and marked with a red ellipse.

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