Gold and its correlation to the U.S. Dollar
The euro has failed yet again to break upwards through 1.31 and has retreated for the second day in a row. The area of 1.31 to 1.32 has proven to be formidable resistance where the euro has tried to push through, and faltered, three separate times since September. Its move lower overnight was precipitated by several headlines. Moody’s downgraded Greece’s credit rating to selective default status. The ECB kept interest rates unchanged and then at the press conference ECB President Mario Draghi gave a half hint of demand for a further rate cut. As the US session opened, US Unemployment Claims in the US came in at 370k which was better than the expected 378k.
Despite the euro free fall today, the precious metals have all managed to attract bids. Gold’s traditional inverse correlation to the USD has completely broken down over the last month. For whatever reason, gold has been lackluster with USD weakness and has gained in USD strength. I don’t expect this trend to continue. Immediate support is intact at $1.685 with more substantial long term support at the 200 day moving average at $1,660. If gold can achieve a close above $1,700, it may be able to buck its recent downtrend and attract bids.
