Gold bears are approaching major support around $4,000, where diminishing bearish momentum could attract buyers ahead of the weekend. Meanwhile, USD/CHF has printed a bearish reversal around resistance, raising the prospect of a pullback alongside a potential recovery in gold. Renewed Middle East tensions and rising oil prices add another layer of uncertainty for traders.
View related analysis:
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- Crude Oil Outlook: WTI Holds Support as Brent Shows Strength
- Japanese Yen Outlook: USD/JPY Meets 200-Day SMA, AUD/JPY Hints at Swing High
- USD/CAD Knocked from Its Perch as US Dollar Rally Pauses for Breath
Gold Approaches $4,000 Support, USD/CHF Reversal Signals Emerge
Renewed tensions between the US and Iran have seen crude oil regain a bid, with inflation concerns and tighter monetary policy expectations returning. This is seeing Brent and WTI crude oil curl higher from the recent support zones I highlighted, and weighing on Wall Street sentiment accordingly. And unless we get the appropriate headlines to convince traders that tensions in the Middle East are de-escalating, then the potential for upside gap risk for oil prices over the weekend seems apparent.
Yet we’re also at the stage where risk-off sentiment has meant that gold has suffered – presumably as funds are forced to liquidate the supposed safe-haven asset to fund losses on the stock market. But with the potential need to hedge over the weekend and the Swiss franc making a comeback as a safety play, perhaps gold can regain its footing around support.
And with a near-term bearish reversal signal on USD/CHF, perhaps that too can pull back as part of a suspected third wave of an ABC correction.
Daily Market Performance: US Dollar Stalls as WTI Oil Rallies
- The US dollar rally continues to show signs of exhaustion, with the DXY struggling to retest Monday’s high and allowing minor gains for its FX major peers.
- The Nasdaq 100 led the S&P 500 lower as Wall Street fell for a second day, though the Dow Jones was effectively flat.
- Metals came under pressure during the risk-off session, despite the slightly softer US dollar.
- Brent and WTI crude oil rallied from support levels as traders repriced Middle East risks.
Gold Futures (GC) Technical Analysis
On Tuesday, I outlined a case for bears to target the 4,000 area ahead of a potential bounce. It is a massive level to break, and irrespective of one's personal view of gold and its fundamentals – there always seem to be some buyers around such big levels. Besides, many were writing off gold back in June when it repeatedly failed to break below 4,000 ahead of its rally – which I was also on guard for.
I also highlighted 4,082 as a potential support level, as it marks the high-volume node (HVN) from the congestion zone back in June. This effectively means it was the most traded price by volume during that period.
So while Thursday printed a bearish outside day, over a third of the day's range was a lower wick – which shows a slight loss of control from bears at that support area. And with the weekend looming and a potential desire to hedge, perhaps gold can hold its own.
If prices do break lower, I still suspect that buyers lurk around the June low or 4,000 area. But at the very least, bears may want to tread with caution around these levels. Especially since volume so far this week has been the lowest in three months and at current prices, gold is on track for a narrow-ranged spinning top doji.
Source: ICE, TradingView
USD/CHF Technical Analysis: US Dollar vs Swiss Franc
The daily chart shows a bearish outside day formed on Thursday around the December 2023 low. This is quite convenient for my outlook, which assumes another leg lower as part of an ABC correction.
Also note that USD/CHF shares a strong inverse correlation with gold, with its 20-day correlation at -0.85. This means if gold rises, USD/CHF tends to fall and vice versa. And that means traders of either market may also want to keep an eye on the other.
Out of the two, I prefer the Swiss franc as its price action is cleaner and less prone to the volatile emotions of gold. However, if gold does bottom, it builds a stronger case for a decent pullback on USD/CHF over the near term.
That said, I will also keep an eye on a potential swing low on the USD/CHF daily chart around 0.820, given its established uptrend within its trend channel.
Source: ICE, TradingView
