The US dollar index reached 81.20 last Friday, the highest level since February 6, but gold didn’t drop. On the contrary, it rose sharply amid an equity markets slump and the report that EU had reached preliminary agreement on tougher economic sanctions against Russia. Besides, short covering before three significant events this week, US second quarter GDP, the FOMC meeting and US July non-farm payrolls, also pushed gold higher.
In Asian morning trade, the gold-USD pair XAUUSD slipped lower as it was overbought in the short term. However, it hit 1301 and the previous downward trend line is expected to provide support to the pair at the moment. Concerns about EU sanctions against Russia may take the upper hand before Wednesday’s US risk events, even though USD is likely to become a leading factor for gold after that. Therefore, I’m inclined to expect XAUUSD to stay above 1301 and retest 1308, with further target at 1315 before key US events. On the downside, if it drops below 1301, it may resume a downward bias with targets at 1295 and 1290.
