The Japanese yen and gold have gone hand-in-hand most of the year, in other words, their moves have been highly correlated or directly inversely correlated, depending on how you look at it. More importantly, the two seem to be flirting with key trendlines, which if either are broken, could have huge ramifications for global markets.
Gold futures are testing a huge (down) trendline that goes roughly 6 years ago, the end of the great bull run that the yellow metal enjoyed over several decades. The monthly chart shows several relevant touches, most recently last July when gold prices drove to 1375 (an exact Fibonacci retracement of the prior decline) and failed.
Since then, gold has gyrated in a large range, but is testing the psychological 1300 region, which has capped now twice over the past few months. Depending on how you draw trendlines (I tend to intersect as many price points as possible), the trendline on a daily chart basis has been broken but failed to hold. Notably, though, is the fact that the ensuing decline paused exactly at a 38.2% fibo and the 20-day MA, which can be seen in the daily chart in yellow.
On a monthly chart, bulls have only managed to probe the trendline. And with a lot of the month of June still to go, we’ll have to monitor closely whether this trendline stays intact.
The Japanese yen tested a key trendline last week too, but not nearly on the scale as gold’s long-term downwardly-sloped trendline. On Friday, the USD/JPY touched this line for the third time and thereby validated a 1-month bear trendline.This occurred while Gold was retracing its move off the recent cycle’s high and bottomed (for the time being) at the 20-day MA and a key fib retracement.
Unfortunately, both these trendlines will not likely hold up due to the way the correlation between the two have held for some time. That said, a break in either of these trendline situations is likely to not only affect the other, but also have impact on all markets given the importance of both of these.
