14th June 2019 - Why is USD is down vs. Gold and up vs. the major currencies?

Walid Salah Eldin

Active member
It is a repeated question since the beginning of this year when the markets started to price on close ending of the Fed's tightening cycle. It was a good reason to start buying the Gold which has no yield to represent to who owns it, while UST yields were going down with lower interest rate outlook in US.

The Gold could gather higher momentum later as a safe haven by the growing geopolitical concerns about US-Iran conflicts, after new attacks on Oil tanks coming from the oil rich Arabian Gulf area, While US-China trade dispute is still affecting negatively on the global economic expansion and its demand for commodities and energy.

In the same time, GBP is still suffering from the miserable political case in UK which can lead to Hard Brexit specially, If the most favorable person to Trump in UK Boris Johnson is to lead of the Conservative Party.

And Even in the case of reaching a deal with EU, The UK economy will be in need for boosting to restore confidence in its outlook and monetary assistance to produce the required number of jobs away from EU, while the current inflation level in UK is still well below its 2% yearly goal.

While the Brexit extension to next Oct. 31 can drive the UK economy to longer stalling and lower confidence in business spending waiting for certainty.

Anyway, this miserable stance should end to something certain about Brexit this year and BOE is looking closer to have interest rate cutting by the end of it to boost confidence and stimulate economy, amid the current lower inflation pressure and the sake for meeting the supply building up at a closer point to avert economic deterioration in UK.

While the single currency is still negatively impacted also by the uncertainty about Brexit and in the same time EU is facing lower inflation levels and slower economic growth can make the ECB in no rush to raise rate.

ECB President Mario Draghi's confirmed during the press conference following the broad members meeting on that the economy is still tilting to the downside and it's not expected to raise rates before the first half of 2020 to avoid joining this current Fed's tightening cycle which is looking about to end by coming soon cutting can be next July.

The ECB has not referred yet to taking any new easing measurements to stimulate the EU Economy which is well threatened by the US trade wars, but the markets participants will be waiting for that reference. while EU governmental bonds yields are easing down following UST.

Trump tweeted this week that the single currency is undervalued but it has not reacted positively following his comment vs. the greenback which is still enjoying better economic stance in US.

The Yields slide could make the Gold more and more attractive to the investors, while all of the markets are waiting now for stronger signal from the Fed to refer to a close interest rate cutting.

While all hopes are hanging now on the new meeting between the leaders of US and China on 28–29 June in Osaka in the coming G20 summit for reaching a relief to stop this war in early time.

After US and China exchanged in the beginning of this month imposing Tariffs were supposed to take place in the beginning of this year, but they have delayed for hopes on talks have sparked in Beyonce Aires by the end of last November during G20 meeting.

Trump decided to raise the levy on Chinese goods worth $200b from 10% to 25% and China retaliate by imposing tariffs from 5% to 25% to a total of $60B worth of US goods saying that China is studying halting of its purchasing of US agricultural products and reducing its Boeing orders.

While the main worry will be always the fear of Chinese selling of its holding of UST to finance this war which can last for longer time than expected.

This Trade War escalating could affect negative on the commodities currencies too such as AUD, NZD and CAD as it weighs down on the potential growth of these 2 biggest economies and their demand for energy and commodities.

RBA has already taken its decision to start lowering the interest rate by 0.25% last week on increasing worries about the global demand for commodities, amid lower global economic expansion expectations and fear of the trade war implications between US and China which have grown recently.

XAUUSD Daily Chart:


After forming a floor at $1266.31 per ounce, XAUUSD has stepped on a higher low this week at $1319.61 per ounce to extend its appreciation to $1358.66

The gold could have a better view recently by dropping series of lower highs starting with its previous formed lower high at $1310.59 which came below Last Mar. 25 high at $1324.52, before dropping today its formed resistance on last Feb. 20 at $1346.73.

XAUUSD is having now higher existence above its daily SMA50, its daily SMA100 and its daily SMA200.

XAUUSD is trading now in its day number 11th of consecutive being above its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today $1311.

The daily chart of XAUUSD shows that its RSI-14 is now inside its oversold area above 70 reading 73.486.
XAUUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line inside its neutral territory reading 68.861 leading to the upside its signal line which is lower in the same region at 50.068, after positive crossover inside the neutral area on forming a higher bottom at $1319.61.

Important levels: Daily SMA50 @ $1294, Daily SMA100 @ $1301 and Daily SMA200 @ $1266
The Closest Experienced S&R:
S1: $1319.61
S2: $1275.04
S3: $1266.31
R1: $1358.66
R2: $1366.06
R3: $1375.20

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din
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