Dollar Rebound Sparks Gold Bear Pennant Warning
The US dollar has rebounded strongly over the past week, driven by rising front-end US yields following Kevin Warsh's hawkish speech at Jackson Hole last Friday. This renewed bid in the greenback is weighing on gold prices, which are coiling within a bearish technical structure that warns of another potential leg lower.
The dollar index (DXY) has regained its mojo, reclaiming its 200-day moving average and the 38.2% Fib retracement of the January to June bull move. The price action in DXY closely mirrors shifts in the shape of the US Fed funds futures curve between June and December this year, with tightening priced by year-end rising to 34 basis points.
The correlation matrix shows a sharp increase in DXY's positive relationship with front-end US yields over the past week, particularly the two-year tenor. At the same time, DXY's already strong inverse relationship with gold has strengthened further, lifting to -0.92 over the past five days.