Gold prices took out the falling channel resistance on the weekly chart and are now trading just few points short from the $1200 mark.
Weekly Chart
We clearly see a bullish break from the falling channel, followed by a rise to near $1200 mark. The bullish move to the falling channel resistance was anticipated here (https://www.fxstreet.com/analysis/macro-scan/2016/01/25 )
The immediate resistance now is the weekly 100-MA stationed at $1200. A bullish break would expose $1232.41 (May 2015 high).
Despite, the bullish break, a caution is advised, since the metal has gained more than $100 within last one month. Consequently, the metal is overbought on the technical charts and looks poised for a technical correction.
The outlook stays bullish so long as we do not see a daily close back below the weekly 50-MA support.
The fundamentals stay bearish – global slowdown, fears of deflationary crash (risk-off), currency wars – race to negative rates territory….all resulting in falling Fed rate hike bets.
USD making a comeback as a risk-off currency
For more than a year, the USD was treated as a risk currency, since the prospects of a rate hike meant the economy is doing well.
Hence, during the bouts of risk aversion seen in 2015, the USD would take a beating against the funding currency EUR. (Apart from traditional safe havens)
However, today we have seen the EUR/USD pair drop despite risk-off. The EUR is far from being a risk currency. Thus, USD may be in a process of taking over the role of risk-off currency again. This is because –
CME data shows markets do not expect Fed to hike rates in 2016.
Treasury yields were on the rise since the talk of rate hike began. This means the treasuries are an attractive safe haven bet now, given the risk-off also means delay/no Fed rate hike.
Treasuries are one of the oldest safe haven assets. Hence, the demand for treasuries could continue to rise amid risk-off; more so due to falling rate hike bets; leading to USD strength.
Thus, USD bears anticipating a sharp fall in the currency could be caught off guard.
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