Traders anticipating big moves in markets last week were not disappointed. The confirmation of upcoming ECB policy normalisation resulted in the EURUSD suffering its steepest fall in two years. While in the U.S., the FOMC meeting provided a hawkish slant as the Federal Reserve’s median dots were shifted higher for the first time since December 2016. Thereby, signalling a preference for four interest rate hikes in 2018 and providing support for the U.S. Dollar.
Further, supporting the case for a higher U.S. Dollar was the contrast in last week’s data between the Eurozone and the U.S. In the U.S., Retail Sales Ex-Autos for May printed at +0.9% vs. market expectations of +0.4%. In Europe (and in China) Industrial Production numbers were lower than expected adding to concerns growth has stalled in both regions.
Topping off an eventful week was news on Friday that the U.S. would push ahead with tariffs on $50bio of imports from China. China has reportedly retaliated with a 25% tariff on $34bio of U.S. auto and agricultural exports. President Trump had promised additional tariffs if China retaliated and a prolonged trade war is now much closer than feared.
Despite enjoying a reputation as a haven in troubled times, Gold fell over US$20.00 on Friday night to close below US$1280.00 for the first time since December of 2017. Confidence in the yellow metal undermined by a stronger U.S. Dollar as can be viewed in the first chart below, Gold and the U.S Dollar Index the DXY, generally move in opposite directions.
A relationship confirmed by independent research house, Moore Research Center, whose 90-day correlation matrix shows the current negative correlation between Gold futures and DXY futures is -.90%, very close to a perfect inverse relationship. Should the U.S. Dollar continue to rally, Gold is likely to continue to slide.
Supporting the bearish view of Gold is the convention technical analysis (chart below). Gold has continued to build on the rejection from US$1365/1375.00 area. A possibility we alluded to in an article written last month https://www.cityindex.com.au/market-analysis/gold-edges-towards-a-technical-breakdown/. The close below the trendline support and recent lows $1282.00 indicates a move towards the 50% retracement at US$1210.00, is underway.
Bounces back to $1290.00 may be viewed as an opportunity to short Gold with a stop loss placed above US$1311.00 The profit target for the trade would initially be the US$1245/35 zone and then the $1215/$1205 area.
Source Tradingview. The figures stated are as of the 18th of June 2018. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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