Dollar rally pushes gold and pound down to key levels
Fawad Razaqzada May 1, 2018 12:11 PM
It was meant to be a quiet day in the FX markets today due to the Labour Day bank holiday across most of Europe and China. However, market participants had other ideas.
It was meant to be a quiet day in the FX markets today due to the Labour Day bank holiday across most of Europe and China. However, market participants had other ideas. They evidently sharply increased their long dollar bets in the expense of the pound and to a lesser degree the euro and gold. But with the upcoming risk events looming later in the week – FOMC on Wednesday and nonfarm payrolls on Friday – the dollar buying may pause for breath again, especially since most currency pairs have now dropped to key technical levels.
Pound takes a pounding
The pound has been hit the hardest in recent times owing to a sharp drop in the odds for a Bank of England May rate increase. This has been due to a combination of soft domestic economic data and dovish remarks from the Bank of England Governor Mark Carney. Today saw the GBP/USD drop to below 1.3600. This was on the back of news UK manufacturing PMI dropped to 17-month low of 53.9 in April, down from 54.9 in March. The cable has now broken its bullish trend but is inside the key 1.3550-1.3650 long-term support range as we discussed its importance HERE. So, it could bounce back from here.
Gold at key level
With the dollar in firm demand, buck-denominated gold has been pushed down to near that $1300 support level. Here, it was testing prior support and the 200-day moving average. Given their technical importance, a bounce of some sort should not come as surprise here – especially if the equity markets were to fall further, say as a result of disappointing earnings from Apple tonight. However, if there are no signs of support at around $1300 then gold’s next stop could be around the 61.8% Fibonacci retracement level at $1286. The next level of resistance meanwhile comes in at $1310.5, Monday’s low, followed by $1315/6, a recent support-turned-resistance level.
Source: eSignal and FOREX.com.
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