Dollar Rebound Weighs on Gold as Bear Pennant Takes Shape

The US dollar has regained its strength, rebounding strongly after twin failures beneath a support zone. This renewed bid is weighing on gold, which is coiling within a bearish technical structure that warns of another potential leg lower.

As noted earlier, the price action in DXY mirrors shifts in the shape of the US Fed funds futures curve between June and December this year. Tightening priced by year-end has risen to 34 basis points, up from less than 25 basis points before Kevin Warsh's speech at Jackson Hole last Friday.

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. This relationship diminishes as you move further out the curve, falling to just 0.16 with the 30-year.