Currency Indices and Gold/Silver Prices – What’s Next?

Written by Jason Hoerr

AUDUSD and Gold Fighting To Move Higher

Two of the best performing financial assets in the last year have been gold and the AUD USD.  Gold bugs reached fever pitch in early May as spot gold prices reached the 1575 level.  The extreme buying gold drew AUD USD into all-time HI’s as well, as the most actively traded commodity pair hit 1.1000.
Now, over the last month both spot gold and AUDUSD have moved into tight ranges of consolidation near their all-time HI’s as investors consolidate gains and the market considers its next move.
Reserve Bank of Australia
Australia is one of the largest gold mining countries in the world, and its heavy mining sector tends to significantly impact the overall economy and the AUDUSD exchange rate.  As commodities rally, AUDUSD tends to rise and as commodities sell off, AUDUSD tends to fall.  In recent weeks, the pullback in commodity prices has caused the AUDUSD to cool off.
Over the last 18 months, the Reserve Bank of Australia has been aggressively tightening interest rates in order to stem inflation and retain order in the economy.  On Monday, the RBA announced that it would keep rates on hold for a second consecutive month.  The RBA noted concerns in the global economy and contained inflation in Australia as reasons to keep the interest rate unchanged.
This RBA decision led the AUD to form a doji on the daily candle yesterday.  This is significant.
As you can see in the chart above, the AUDUSD has been forming a descending triangle for about 6 weeks, with lower HI’s and a horizontal base of support at 1.0489.  Now, yesterday’s daily candlestick is covered in the red-shaded circle.  Notice that the low of the day is very near the low of the last 6 weeks.  The RBA came out with a pretty dovish (negative) Minutes release, and yet the AUDUSD could not break that low.  Typically, if a financial instrument cannot sell off when bad news comes out, then it is highly probable that it is going to continue moving higher.  You can see that today’s candlestick is remaining inside the HI and LO of yesterday, as neither buyers or sellers are willing to commit to large positions.
We need to see a break of either the bearish trendline connecting the HI’s or the horizontal support guarding the LO’s.  Currently, the AUDUSD is simply stuck in a larger range.
As the commodity boom continues to cool, Gold has struggled to move higher.  Gold prices, in fact, look very similar to the AUDUSD, as price has consolidated near the HI of the trend.
Instead of a descending triangle like the AUDUSD, gold is forming a beautiful pennant.  Now, this price pattern is typically a continuation pattern in the middle of a strong trend, so in this case, the sentiment still remains bullish for gold.  You can see today’s candlestick in the red-shaded circle, and price is fighting to break out of the pennant.  Gold has been steadily rising over the last few days, although the volatility of movement has been contained.
Gold has major resistance here at the topside of the pennant and then again immediately at the 1550 level.  If Gold can get a strong Daily close above 1550, however, that would be a strong sign of buying interest and a potential resumption of the upward trend.
The Game Plan
The safest way to engage financial markets is to not predict where price will go.  Instead, conduct analysis as we have in this article, and then wait for price to tip its hat.  In the case of the AUDUSD, we want to see a break below support or above resistance, and in the case of gold we want to see a Daily close above 1550. Just remember that past performance is not necessarily indicative of future outcomes and that risk management and control is key, along with education and knowledge, for any trader.