Gold pressurised as dollar extends gains ahead of US CPI
Fawad Razaqzada July 12, 2018 12:34 PM
The US dollar has resumed its rally after starting the first week of July on the back foot when it was hit by profit-taking following a three-month winning streak. Now that the Dollar Index has turned positive on the month could it finish the month of July higher, too? Investors have been piling in on the dollar because of higher interest rates in the US and expectations that monetary conditions will tighten further in the coming months. With US employment already near its potential, unemployment low and wages on the rise, inflation could accelerate in the coming months due to the increase in the price of goods and services as a result of the import tariffs. The impact of the tariffs won’t show up in today’s publication of the June Consumer Price Index (CPI), but if it turns out that inflation was already higher than expected last month then this may further boost expectations over rising price levels and in turn tightening of monetary policy from the Federal Reserve, which already looks set to hike interest rates two more times in 2018.
Consumer Price Index expected to climb to 2.9%
The probability of the Fed doing so would undoubtedly increase more should incoming data point to further improvement in economic conditions or a pickup in inflation. In this regard, today’s publication of CPI will be very important for market observers. Analysts expect headline CPI to have again risen by 0.2% month-over-month in June, taking the year-over-year rate to 2.9% from 2.8% previously. Core CPI, which excludes volatile food and energy prices, is also expected to have risen 0.2% on the month with the year-over-year rate seen rising to 2.9% from 2.8% recorded in May.
Dollar remains bid ahead of CPI
Ahead of the CPI publication, the US dollar has further gained ground, especially against currencies where the central bank is still dovish like Japanese yen for example. But it has also risen against some of the stronger rivals, including the Canadian dollar. The CAD initially rallied after the Bank of Canada hiked rates yesterday. But it could not maintain its gains as traders who had bought the currency in anticipation of the rate hike took profit, while the slump in oil and metal prices also weighed on the commodity currency.
Gold could be heading towards $1200
Should the dollar gain further ground then buck-denominated gold could remain under pressure, for risk appetite also remains strong given the recent rally on Wall Street despite all the trade concerns. As we had pointed out previously, the recent rally that took place last Monday looked suspicious to us because it happened just ahead of a big level at 1235/6 – the low from December. Undoubtedly, there’s some big orders resting below this level (i.e. stop sell orders) which could get triggered in a potentially sharp move – possibly as early as today – before we can talk about the prospects of a bottom in gold. So far we haven’t seen anything significant to suggest the selling is done. So the path of least resistance remains to the downside and I wouldn’t be surprised if even $1200 is hit at some point in the not-so-distant future.
Source: TradingView.com and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.