Dollar Rebound Sparks Pressure on Gold as Bear Pennant Takes Shape

The US dollar has rebounded strongly over the past week, driven by rising front-end Treasury yields following Kevin Warsh's hawkish speech at Jackson Hole. This renewed support for the dollar is putting pressure on gold, which is coiling within a bearish technical structure that warns of another potential leg lower.

As noted earlier this month, DXY had been finding it difficult to break above resistance at 100 after twin failures beneath a key support zone. However, having reclaimed its 200-day moving average and the 38.2% Fib retracement of the January to June bull move, the price has rebounded strongly over the past week.

The correlation matrix shows a sharp increase in DXY's positive relationship with front-end US yields, particularly the two-year tenor, where the correlation has jumped to 0.87. This inverse relationship between the dollar and gold is also strengthening, lifting to -0.92 over the past five days.