Gold Sets New Highs On Strong EUR/USD

Gold is trading off fresh 2009 highs as the Dollar logs gains against the Euro and Aussie.  However, this is after the EUR/USD popped past our key 3^rd tier downtrend line and September highs.  While a retracement beneath our 3^rd tier downtrend line is possible, today’s movement in the EUR/USD could spell accelerated gains in the near future.  The final obstacle the EUR/USD must overcome is its highly psychological 1.50 level.  The reason we speak of the EUR/USD in relation to gold is because the precious metal has achieved its historic breakout without full cooperation from the Euro.  The EUR/USD has been tightly correlated with gold throughout the year, implying gold’s accomplishment overcame quite a few obstacles of its own.

Therefore, as we mentioned previously, a topside breakout in the EUR/USD could fuel further gains in gold.  As a result, we feel a pressing need to highlight any noteworthy developments regarding the EUR/USD’s topside potential.   Gold hasn’t given evidence of creating a lasting top since we have no historical reference to work with.  Hence, gold’s uptrend is alive and boundless until we are able to initiate some credible downtrend lines.

Meanwhile, investors should eye near-term performances of both the AUD/USD and EUR/USD since gold should be positively correlated with these two major Dollar crosses.  Furthermore, upcoming Q3 earnings and U.S. econ data should impact the FX markets, meaning gold will be influenced as well.  Outperformance of earnings and data implies gains in U.S. equities and consequently serve as positive catalysts for gold’s uptrend, and vice versa.  Technically speaking, it’s difficult to place topside technicals on gold other than the psychological $1075/oz and $1100/oz levels.  As for the downside, the precious metal has developed a few technical cushions, including our multiple uptrend lines along with 10/13, 10/10, and 10/7 lows.  Additionally, the psychological $1050/oz level should serve as a technical support.

Present Price: $1057.40/oz

Resistances: $1058.54/oz, $1061.40/oz, $1068.30/oz

Supports: $1054.82/oz, $1052.80/oz, $1050.67/oz, $1048.60/oz, $1045.23/oz, $1042.96/oz

Psychological: $1050/oz, $1075/oz, $1100/oz

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