Have gold prices (GLD) stopped responding to the weakness in the dolllar? Lately, it certainly would appear so. Let's notice that since mid-March, the euro actually has carved-out a "rising wedge" pattern, which depicts a series of horizonal rally peaks (around 1.59.00/85 juxtaposed against a series of rising pullback lows), which are putting upward pressure to thrust the euro above 1.6000 into new all-time high territory. Conversely, we have gold prices ignoring the still-bullish pattern in the euro/$, and instead, in the grasp of a downside correction that points towards additional weakness beneath the April 1 low at $872 on the way to $850/$820. Why the divergent action?

My suspicion is that gold prices are anticipating 1) a peak in euro/$ in the days ahead, and 2) that at the next FOMC meeting on April 30, the Fed indicates that it is has cut enough to stimulate aggregate demand. The Fed and is concerned about inflation, which will warn the markets that the current rate cut cycle is complete, and that the next Fed action will be to raise Fed funds. If any of my suspicions are on the mark, then both gold and the euro are (will) anticipate the shift in the direction of rates in the upcoming days.



Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com, a real-time diary of his technical chart analysis and trading alerts on all major markets. For more of Mike Paulenoff, sign up for a free 15-Day trial to his MPTrader Diary by clicking here.