3rd June 2019 - The Gold could be well-buoyed on focusing on the interest rate outlook

Walid Salah Eldin

Active member
While the Trade tensions are still dominating the market sentiment, The interest rate outlook started to take its effect across the globe weighing down on the greenback which was not just weaker against the Japanese yen on the risk aversion sentiment but also weaker against the European currencies and gold which kept its creeping up by higher momentum in the most recent days.

EURUSD is now trading close to 1.1175 and GBPUSD could recover for trading today morning near 1.2650 after diving last week to 1.2560, while the dovish market sentiment persistence could prop up further the Japanese currency as a low cost financing currency finds more buyers on unwinding of the carry trades asking for safe haven.

USDJPY hovered just above 108.20 during the first Asian session of this week weighing down further on the exporters of Nikkei 225 which closed at 20410.88 losing 0.92%, while the future rates of the US equities indexes are still heading to the downside.

Now it is not expected to see interest rate hiking in EU in the first half of 2020 and also from my perspective, I see coming soon interest rate cutting in UK which is living in miserable political case can drive it closer and closer to Hard Brexit specially, If the most favorable person to Trump in UK Boris Johnson is to lead of the Conservative Party.

Even in the case of reaching a deal with EU, The UK economy will be in need for boosting to store certainty about its outlook and for helping it 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.

In the same time in Japan, weaker global growth can put more deflationary pressure on BOE to maintain its ultra easing policy which is also targeting rising of the inflation by 2% yearly by keeping the interest rate at -0.1% since Jan. 29, 2016, holding its JGBs annual pace of buying at nearly ¥80tr since the end of October 2014 and maintaining its 10yr JGB yield target as it has since Sep. 21, 2016 at Zero per cent.

JGB 10yr yield dived to a lower place below Zero to stand now near -0.093%, while UST 10yr yield extended its slide today to 2.1177% recording new low since 2017 amid continued concerns about US Trade wars and their impacts on the global economy and the interest rate outlook across the globe.

The Yields slide made 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.

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.

Now all hopes are hanging 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 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 studying stop purchasing US agricultural products and reducing Boeing orders.

While this Trade War escalating can effect negative on the potential growth of the 2 biggest economies which can look for side ways to pass their trades and it can also dampen the demand for commodities and Energy and the economies depending on them Such as Canada, Australia which are considered the nearest commodities markets to these 2 big economies.

By the end of this week, The markets will be closely watching the release of US labor report of May to know more about demand for jobs and the wages inflationary pressure which is looking to the Fed not less important than its preferred gauge of inflation PCE which came out by last week end as expected showing yearly rising by 1.5% in April, while the Fed's yearly target is 2%.

XAUUSD Daily Chart:


After forming a floor at $1266.31 per ounce followed by a bottom at $1275.04, XAUUSD could accelerate its upside momentum to surpass $1300 psychological level before reaching $1315 in the beginning of today European session.

The gold could have a better view after overtaking its previous formed lower high at $1310.59 which came below Last Mar. 25 high at $1324.52 which is now forming the next resistance below last Feb formed peak at $1346.73.

After this rebounding extension to $ 1315, XAUUSD is having now higher existence above its daily SMA50, its daily SMA100 and its daily SMA200.

XAUUSD is trading now in its second day above its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today $1270.

The daily chart of XAUUSD shows that its RSI-14 is now in higher place inside the neutral region reading 68.219 in a closer place to its oversold area above 70.
XAUUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line inside its overbought territory above 80 reading 95.488 leading to the upside its signal line which is lower in the same region at 80.183, after positive crossover just below its overbought area above 80.

Important levels: Daily SMA50 @ $1287, Daily SMA100 @ $1296 and Daily SMA200 @ $1260
The Closest Experienced S&R:
S1: $1275.04
S2: $1266.31
S3: $1253.46
R1: $1324.52
R2: $1346.73
R3: $1366.06

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din