- US dollar on the back foot on retreating yields.
- Gold rally stalls above $1840.
- USDCAD bulls are streaming in.
The US dollar rally stalled Thursday morning as a retreat from two-month highs gathered steam. The dollar index, which tracks the greenback strength, pulled from highs of 95.74 to lows of 95.41. The retreat coincided with the US treasury yields rally cooling off after powering to two-year highs early in the week.
The US 10-year yield was trying to hold on to gains above 1.84% after pulling back from highs of 1.90%. The pullback in Treasury yields comes as a surprise as investors are increasingly bracing themselves for the US Federal Reserve to start tightening monetary policy. The prospect of a rate hike in March is high, with four hikes expected before year-end.
Gold technical analysis
Gold has been one of the beneficiaries of US dollar weakness, going by the recent rally to two-month highs, above the $1840 an ounce level. However, XAUUSD appears to have gone into consolidation mode amid struggles to find support above the critical level.
While the metal did close above the $1839 trend line support, a corrective decline below the level is already fuelling concerns about the strength of the upward momentum. If the corrective phase gains momentum, XAUUSD faces the risk of plunging back to the $1831 mark, the next substantial support level.
Bull’s failure to defend the support level could accelerate a pullback to the $1815 level. Similarly, bulls steering a rally followed bay close above the $1844 level could affirm the upward momentum, which could open the door for the precious metal to make a run for highs of $1871.
Gold price action drivers
XAUUSD’s recent rally to highs of $1844 came at the back of a major disconnect with Treasury yields. The yellow metal rallied even as Treasury yields also rallied to two-year highs, which does not occur normally. However, the disconnect appears to be easing off, with XAUUSD pulling back as Treasury yield holds steady near multi-year highs.
Limiting the gold gains in addition to US yields steadying is China’s policy easing. The push has only gone to fuel risk-on mood with traders turning to highly battered assets instead of the comforts of gold.
However, Gold could continue rallying as a hedge against inflation, a big issue in most economies. In addition, the escalating Russia-Ukraine tensions in Europe could trigger renewed demand for safe-haven, which could benefit gold sentiments in the market.
USDCAD bull’s eye 1.2500
Meanwhile, the Canadian dollar is yet again in the spotlight as oil prices struggle to hold on to gains after a spike to seven-year highs. USDCAD has started edging higher, with bulls setting sights on the 1.2500 psychological level.
After slumping to two-month lows of 1.2450 levels, USDCAD has once again started edging higher. A daily close above the 1.2500 should affirm the emerging uptrend, which could see the pair making a run for the 1.2550 level.
On the flip side, failure to take out the 1.2500 level could leave the pair susceptible to further losses and probably back to two-month lows of 1.2450.
The downside action on the USDCAD pair remains supported by talk that global oil demand is poised to hit pre-pandemic levels. Short-term supply disruptions have helped tighten the markets, all but fuelling higher prices. The result has been the strengthening of the CAD against the greenback. However, with the dollar regaining its footing on rising treasury yields, the upward momentum on the USDCAD could come into play.