Gold Surges as Dollar Pulls Back from High

8 September 2022, 02:29

Market Focus

US stocks advanced higher on Wednesday, climbing the most in about a month as the global bond market selloff takes a break. The equity markets witnessed fresh upside strength after the release of the minutes from the Federal Reserve (Fed) Beige Book, which showed that price growth has slowed in 9 of the 12 districts and also indicated that economic activity was unchanged but the outlook for future economic growth remained generally weak. Investors tend to wait for the September 13th inflation report as the economic momentum could only improve if inflation continues to soften. In the Eurozone, the European Central Bank will announce its monetary policy decision on Thursday, where it is widely anticipated to hike rates by 50 bps, although the focus will be on whether European policymakers are willing to put growth behind taming inflation or not. Skyrocketing prices in the Eurozone are taking their toll on households and businesses and pushing high inflation up amid the European energy crisis.

The benchmark S&P 500 and Dow Jones Industrial Average both staged a goodish rebound on Wednesday as improving market sentiment and a retreating US dollar provided support to the equity markets. The S&P 500 was up 1.8% on a daily basis and the Dow Jones Industrial Average also advanced with a 1.4% gain for the day. Ten out of eleven sectors stayed in positive territory, with the Utilities and the Consumer Discretionary sectors the best-performing among all groups, rising 3.14% and 3.08% respectively. The Nasdaq 100 meanwhile climbed the most with a 2.1% gain on Wednesday and the MSCI World index was up 1.1% for the day.

Main Pairs Movement

The US dollar suffered daily losses on Wednesday, failing to extend its previous rally and retreating towards the 109.5 area during the American session amid a slightly risk-on impulse across the board. The Fed Beige Book also reported that some firms see some easing in labor shortages and price pressures. As for now, Investors expect hawkish commentary from Fed Powell on interest rates as price pressures are still high.

GBP/USD was little changed on Wednesday as Cable remained under pressure near March 2020’s low amid the less-hawkish Bank of England. On the UK front, BoE policymakers failed to reinforce bets for a 75 bps September rate hike during the Monetary Policy Report Hearings. Meanwhile, EUR/USD advanced sharply and extended their intra-day rally towards the 1.000 area ahead of the ECB’s rate decision. The pair was up almost 1.05% for the day.

Gold surged with a 0.95% gain for the day after touching a daily high above the $1718 mark during the US trading session as the yellow metal marked its biggest daily gains in over a week amid a pullback from the 20-year high witnessed in the US dollar. Meanwhile, WTI Oil continues to suffer heavy losses and refreshed its daily low below the $82 mark in late US trading session as speculation about easing Chinese demand following tepid local data is weighing on oil price.

Technical Analysis

EURUSD (4-Hour Chart)

EURUSD enjoyed a surge in demand over the course of the previous trading day. The shared currency saw increased bidding as market participants await the ECB’s monetary policy decision, which is scheduled during the late European trading session of today. Markets are currently pricing in a 50 basis point interest rate hike by the ECB. However, interest rate hikes could pose further pressure on a deflating European economy. In addition to a slowing economy, Europe now faces further energy price instability as the Nordstream 1 pipeline halts its supplies. The initial jobless claims figure from the U.S. is also scheduled to be released during today’s American trading session.

On the technical side, EURUSD has successfully defended our previously estimated support level of 0.9902. The short term bounce of the pair will meet its near term resistance at around the 0.9983 price region. RSI for the pair sits at 52 as of writing. On the 4 hour chart, EURUSD currently trades below its 50, 100, and 200-day SMAs.

Resistance:  0.9902, 1.0033, 1.0055

Support: 0.9902, 0.985

GBPUSD (4-Hour Chart)

Cable traded lower over the course of Wednesday’s trading. The British Pound met strong selling pressure at the start of the Asia trading session. Remarks from members of the BoE further added to the selling pressure. BoE policy makers are still debating whether a further interest rate hike is necessary and some are arguing for a more gradual rate hike in order to prevent over-tightening as the British economy continues to falter. The strong U.S. Greenback further limits any upward movement for the British Pound. Market participants will now turn their attention to the U.S. initial jobless claims figure, scheduled to be released during today’s American trading session. A worse-than-expected initial jobless claims figure could ease bets of a 75 basis point interest rate hike by the Fed and allow the British Pound some breathing room.

On the technical side, GBPUSD has touched our previously estimated support level of 1.1463 and is currently trading around that price region. The next level of support for Cable sits at around the 1.13 price region. RSI for Cable sits at 41, as of writing. On the four hour chart, GBPUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance: 1.1561, 1.1854

Support: 1.1463

XAUUSD (4-Hour Chart)

Gold traded higher over the course of Wednesday’s trading. The non-yielding metal took advantage of a weaker dollar and was able to find footing above the $1700 per ounce price level. The Greenback saw a broad-based sell off as short term treasury yields retreated below 3.3%. However, as the next FOMC meet nears, market participants should be aware that the dollar-denominated and non-yielding metal could see a further price depreciation. Furthermore, with the ECB slated to increase interest rates by 50 basis points, demand for the yellow metal is expected to fall even further. A return to normalcy could be on the horizon as breakthroughs in antibody research against COVID-19 have been announced by Duke University. A reverse in risk sentiment could send Gold below the $1650 price level.

On the technical side, XAUUSD has rebounded from our previously estimated support level of $1695 per ounce and is trending towards our estimated short term resistance level of $1724 per ounce. RSI for XAUUSD sits at 51.7 as of writing. On the four hour chart, XAUUSD is currently trading below its 50, 100, and 200-day SMAs.

Resistance: 1762, 1800

Support: 1688.129, 1695