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Global Stock Selloff Resumes, but USD Falls as Gold Eyes Reversal

Global Stock Selloff Resumes, but USD Falls as Gold Eyes Reversal

Daniel Dubrovsky, Strategist

Asia Pacific Market Open – Global Stock Selloff, Gold, US Dollar

  • Global stock selloff continued as expected, Asia, European shares and S&P 500 declined
  • US Dollar failed to capitalize as the world’s reserve currency, AUD & NZD appreciated
  • Gold prices clocked in largest gain since June 2016, trend line broken as reversal eyed

We just released our 4Q forecasts for gold in the DailyFX Trading Guides page

The global market selloff echoed into Thursday’s trading session as expected, with many European and US benchmark stocks indexes gapping lower. The Dax declined 1.48% and the S&P 500 fell about 2.06%, lead lower by most sectors. Notable announcements from key officials failed to offer much respite for markets. Reports crossed the wires that Donald Trump is to meet China’s President Xi Jinping in November.

US government bond prices continued to inversely track stock markets as investors still sought safety. Yet, the US Dollar remained under pressure despite its status as the world’s reserve currency. In fact, losses accelerated leading into Wall Street market open as we saw brief temporary upside reversals in equities. Then, a softer-than-expected US CPI report did not bolster the case for positive progress in the greenback.

Puzzlingly, typical pro-risk currencies such as the Australian and New Zealand Dollars gained ground against their major peers. This may have been as a result of weakness in the US Dollar, which suffered yesterday as December 2018 Fed rate hike bets softened. Kansas City Fed President Esther George spoke today and reiterated that the outlook warrants further gradual hikes, but failed to mention stock markets.

To add further to the confusion, ‘anti-risk’ currencies such as the Japanese Yen and Swiss Franc failed to capitalize much on the pronounced weakness in equities. Throughout the day, these units seemed to have reacted more closely with brief gains in stocks. For example, JPY and CHF saw the majority of declines between Asia market close and US open. During this time, Nikkei 225 futures saw some temporary gains.

What seemed straightforward were gains in gold prices which tend to inversely follow the US Dollar as an ‘anti-fiat’ asset. Given the weakness in the greenback, we saw the precious metal clock in its most aggressive gain in a day (+2.47%) since June 2016. Meanwhile sentiment-linked crude oil prices tumbled again, weakened by market mood and a larger-than-expected increase in weekly EIA inventories below.

With that in mind, it seems as though risk trends will continue dominating global financial markets and we may see Asia Pacific stock indexes trade lower. Whether or not this will result the typical risk-averse trading dynamic in FX remains to be seen but volatility seems poised to be high. Also, given confirmation of bullish reversal warning signs in EUR/USD prices, we have exited our short position.

Gold Technical Analysis

The intense gain in gold resulted in a break above a long-term descending trend line from April, perhaps opening the door to a reversal of the dominant downtrend. This exposed near-term resistance which is the December 2017 low at 1,236.66 which is also closely aligned with the 38.2% Fibonacci retracement. A push higher then opens the door to testing the October 2017 low around 1,260.80.

Gold Daily Chart

Global Stock Selloff Resumes, but USD Falls as Gold Eyes Reversal

What Else to Expect Ahead?

Australian Dollar Technical Outlook

Analyst Pick:

AUD/NZD Long at 1.09168

US Trading Session

Global Stock Selloff Resumes, but USD Falls as Gold Eyes Reversal

Asia Pacific Trading Session

Global Stock Selloff Resumes, but USD Falls as Gold Eyes Reversal

** All times listed in GMT. See the full economic calendar here

FX Trading Resources

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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