China continues to support the Yuan and we can expect consolidation around 15 US cents. Threat of trade tariffs is weakening the Yuan, forcing the PBOC to sell off foreign reserves to prevent a downward spiral as investors flee and borrowers hedge against the stronger Dollar.
PBOC sale of foreign reserves, mainly held in US Treasuries and mortgage-backed securities, would drive up yields and weaken the Dollar. The Dollar Index continues to test resistance at 95. Respect is likely and would warn of another correction. While unlikely, breakout above 95 would signal that the PBOC is sitting on its hands while the Dollar advances to an initial target of 100.
Gold is testing primary support at $1240/ounce. A stronger Dollar would breach support, warning of a decline to $1150. Respect of primary support is more likely and would signal another rally.
The price of gold in Australian Dollars has been edging up over the past few years as the Aussie Dollar weakens. But the monthly chart below shows that Gold (USD) has fallen faster than the Aussie Dollar over the last 3 months. Large bearish divergence on the Trend Index indicates selling pressure. Breach of support at $1650 (AUD) and the rising trendline would warn of a reversal.
The All Ordinaries Gold Index is a bit stronger, having broken through resistance at 5000. A correction that respects the rising trendline and new support level at 5000 would confirm the primary advance, with a target of 6000.
