Gold bears keep control as dollar tests waters around 95 handle


  • Spot gold has been a path to ruins on the back of the dollar's spike on a market optimism over the impressive run of economic performances in the US economy, streaks ahead of its 'competitors' and the latest Durable Goods and in line GDP data gave the dollar a boost tot he 95 handle overnight.
  • Gold is currently trading at 1183.32 in Tokyo with a high of 1184 and a low of 1182.

The greenback rallied from 94.25 territories in Asia yesterday and kept its form in a sideways consolidation throughout the European markets around 94.50/65. The dollar then came back to life on the US data and rallied to highs of 95 in late NY. 

Now that the US economy is running at full steam ahead, it was appropriate that the Fed removed that sentence from the statement - But what markets traded was the forward outlook - As the policy rate moves closer to estimates of neutral,  members of the FOMC and observers, market participants, now forecast a modestly restrictive terminal FFTR while other Central Banks embark on their own normalisation of policy, thus stripping some of the yield advantages out of the long end of the curve for the dollar. 

However, in the near term, the dollar remains on top and following today's set of economic data, as Senior Analyst Joseph Trevisani at FXStreet explained, "Between Chairman Powell's comment yesterday the that the U.S. economy is in a particularly good spot and today's robust durable good orders and excellent business spending, despite the August pause the six months to July saw the strongest investment spending in five years, the dollar has room to run on the American economy alone."

US economic data

US: Pending home sales decline by 1.8% in August vs 0.4% expected
US: Durable goods orders increased by 4.5% in August following July's 1.2% contraction
US: Real GDP expanded at an annual rate of 4.2% in Q2 to match expectations

FOMC outcome notes

As expected, the FOMC raised the FFTR and the IOER by 25bps at its September meeting.
‘Dot-plot’ distribution around three hikes in 2019 narrowed; FOMC still sees strong growth as cyclical.
2021 projections indicate a ‘soft landing’ through lower real growth and slightly higher unemployment.
The only significant change to the statement was the removal of the description of monetary policy stance as “accommodative”.

Yield spread is going to continue pressuring Gold

Despite Powell’s claim that the "accommodation" removal sentence did not mean anything, US Treasury yields were lower on the FOMC initially with a pronounced flattening of the 2-10 segment. However, the ‘bull-flattening’ of the US yield curve was also reverberating throughout markets. The US 10-year is currently sat at 3.05%, that's down from the pre-Fed 3.11% mark but back up from the 3.03% lows. Indeed, the 3.00% psychological handle should keep the dollar bid whereas Gold yields nothing for investors.

Gold levels

Gold Technical Analysis: Bears take the lead and drive the Yellow Metal to $1,183.00 support

Valeria Bednarik, Chief Analyst at FXStreet, point out that the daily chart shows an increased bearish potential as the price finally detached from a still flat 20 DMA, although the 100 and 200 DMA maintain their strong downward slopes far above the shorter one. “The Momentum indicator in the mentioned chart remains around its mid-line but the RSI is now heading firmly south at around 38.” 

She adds that XAU/USD broke below the base of a symmetrical triangle, a sign of continuation and in see risk skewed to the downside also short-term. Support levels could be seen at 1,183.05, 1,173.80 and 1,160.10
 

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