The U.S. Dollar Index has been firm since early 2018, climbing from below 89 to recently above 98. We decided to take a look at the index to see if a turn to the downside could be coming.
With the price of gold firming, if we see the U.S. Dollar index weaken now, gold could rally even stronger in the next few weeks. Let's check.
In the daily bar chart of DXY (the symbol for the U.S. Dollar Index), below, we can see an uptrend the past twelve months but with frequent pullbacks and corrections. DXY is above the rising 50-day moving average line and the bullish or rising 200-day line.
We can see that the 50-day line was tested in April and May and will probably be challenged in June. The 200-day line was tested in January and March.
The Moving Average Convergence Divergence (MACD) oscillator has been floating above the zero line since February and it will probably not take much of a price decline to see this indicator cross below the zero line for a sell signal. The 12-day price momentum indicator at the bottom of the chart shows a pattern of lower highs from February while prices made higher highs -- a bearish divergence and a sign that the advance is slowing.
In the weekly bar chart of DXY, below, we can see that prices are above the rising 40-week moving average line. The weekly MACD oscillator is above the zero line but could cross up or down depending on the next move for the DXY.
The 12-week momentum study has been weakening since last June and is a large bearish divergence versus price. The longer a divergence goes on the more significant it can become. The slow stochastic indicator suggests prices were overbought in April.
In this Point and Figure chart of the DXY, below, we can see that a rally to 98.68 would be bullish and a decline to 96.73 would be bearish.
Bottom-line strategy: I find the DXY hard to analyze as we lack volume, but our momentum indicators suggest that prices are vulnerable to a decline. A weaker dollar will give the gold market a push.