Gold was falling at the time of writing after failing to approach and reach the 1,831.83 resistance. The yellow metal turned to the downside as the US Dollar started to grow versus its rivals despite the fact that the US reported poor economic figures these days.
As you already know from my analysis, we have a strong negative correlation between XAU/USD and DXY (Dollar Index). Surprisingly or not, Gold dropped despite the US retail sales indicators reporting a strong drop. Also, Industrial Production fell by 0.1% in December, the specialists expected a 0.2% growth.
Gold registered a strong sell-off in the short term only because the Dollar Index was oversold. Still, XAU/USD’s drop could be only a temporary one.
XAU/USD drops as DXY rallies
As you can see on the H4 chart, Gold reached 1,815.57 static support. As long as it stays above it, the yellow metal may resume its growth. The sideways movement could represent only an accumulation before jumping higher.
Technically, the rate retests the first warning line (wl1) which stands as a dynamic support. Actually, at the time of writing, XAU/USD was challenging the confluence area formed at the intersection between the warning line with the 1,815.57 level.
A valid breakdown through the confluence area may announce a larger downside movement towards the 1,800 psychological level. On the other hand, staying above this area, above the mentioned support levels, XAU/USD could start increasing again. A false breakdown with great separation or a minor consolidation could announce a bullish momentum towards 1,831.83.
The material has been provided by InstaForex Company – www.instaforex.com