Gold prices took out the falling channel resistance on the weekly chart and are now trading just few points short from the $1200 mark.
• 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.
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.
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.• 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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