Expectations are that the Federal Reserve will raise interest rates at both of the next two FOMC meetings in July and September. According to CME’s FedWatch tool, there is a 93.9% chance the Federal Reserve will raise interest rates by 75 basis points at the end of this month. That’s up more than 10% from yesterday’s FedWatch tool which predicted there was an 83.8% chance of a 75 basis point rate hike.
This increase is a reflection of the hawkish practices from last month’s FOMC meeting that were released today. The release of the minutes from the June FOMC meeting combined with hawkish statements from several Fed members who voted had a strong bullish influence on the dollar and a bearish influence on gold. Now, for the second day this week, we have seen the dollar gain value moving to a 20-year high and gold continue to lose value now at its lowest price since last year.
Current Gold and Dollar Support and Resistance Levels
The current trend of dollar strength and gold weakness could find technical resistance/support near their current values. Of course, there is an obvious caveat to the above statement. The caveat is that both the dollar and gold have been fueled by securities that reduce the accuracy of technical studies for predicting financial markets.
The chart above is a weekly Japanese candlestick chart of the dollar index. It contains a Fibonacci extension that looks at the rally that started in 2014 when the dollar index had a value of 79 until the end of the rally at 103.95 that occurred in the first quarter of 2017. The Fibonacci extension measures the increase in value in the dollar during during this rally and the extension begins after a correction in 2018 when the dollar fell from 103.95 to 88. The key levels to see in a Fibonacci extension are 61.8%, 78% and 100%. The 61.8% Fibonacci extension occurred around 104, which was the main resistance level from 2017 until May of this year, when the dollar surged beyond 105. This price is now likely a key level support. The next level (78%) at 107.46 is now within striking distance with the dollar index trading at a high of 107.07 today.
Gold futures have fallen nearly $80 over the past two days. However, technical damage on the charts first occurred on Friday, July 1, when gold closed below a major support trend line. Yesterday gold opened below this trendline and closed below the 78% Fibonacci retracement we identified in yesterday’s article. Therefore, the next logical level to look for technical support appears at $1720. This is based on the closing price during the flash crash in August that sent gold to an intraday low of $1678 and the low in late September, when both days closed at $1721.
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