We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
GBP/USD
Bullish
USD/JPY
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Mixed
Oil - US Crude
Mixed
Bitcoin
Bearish
More View more
Real Time News
  • The USD may rise if the FOMC re-affirms its data-dependent approach and cools 2020 rate cut bets. US retail sales and CPI data may also give the Fed impetus to hold rates. Get your $USD market update from @ZabelinDimitri here: https://t.co/XnDITaDOox https://t.co/A480uVMqF2
  • What tools does the ECB have left to stimulate the Eurozone? Where is the #Euro heading? Find out from Chief Eurozone Economist at Pantheon Macroeconomics Claus Vistesen only on Trading Global Markets Decoded #podcast hosted by @MartinSEssex here:https://t.co/Twr44cZ1GB https://t.co/DXlDH5Cp9e
  • The price of oil extends the advance from the October low as #OPEC and its allies pledge to take additional steps to balance the energy market. Get your crude #oil market update from @DavidJSong here: https://t.co/llGq8yPFH4 #OOTT https://t.co/1OCVOIrK98
  • Gold closed lower after paring early-week gains post-NFP on Friday. But will price finally break support? These are levels that matter on the XAU/USD weekly chart. Get your gold technical analysis from @MBForex here: https://t.co/ovGheRg4MQ https://t.co/ZEQSYktj0w
  • What is your #tradingstyle? Take the quiz and let us know: https://t.co/LPBOcS0Vtd https://t.co/l6FvtcADEH
  • Asia’s vast and growing importance to the world economy is not yet matched by the presence of a currency trading center to rival the established order. Get your update on market drivers in Asia from @DavidCottleFX here: https://t.co/E2hqoRdO7q https://t.co/dnrAMFK4U2
  • Geopolitical developments send #oil prices soaring or falling. Get your market update from @MartinSEssex here:https://t.co/XVXLyG8vjq #OOTT https://t.co/RMk5Eb5fLU
  • Negative yielding government bonds – What are they telling us? Find out from @nickcawley1 here: https://t.co/F6JuhmrvPT https://t.co/KdpSjQSJ8F
  • #Euro area stocks may be preparing to break the four-month uptrend built around hopes for a US-China trade deal and an orderly #Brexit outcome. Get your market update from @IlyaSpivak here: https://t.co/ujlCJiXLvh https://t.co/INdFtsrTTF
  • What is the top market moving theme for the coming week? I disagree with the majority. '$EURUSD, $GBPUSD and $AUDUSD Top Volatility Candidates With #Fed, #Election, #TradeWar' https://www.dailyfx.com/forex/video/daily_news_report/2019/12/07/EURUSD-GBPUSD-and-AUDUSD-Top-Volatility-Candidates-On-Fed-Election-Trade-War.html?CHID=9&QPID=917719 https://t.co/Q1dbZVN5Us
Gold Prices Hover Near Key Support as DXY Index Stays Elevated

Gold Prices Hover Near Key Support as DXY Index Stays Elevated

2019-01-23 14:51:00
Christopher Vecchio, CFA, Sr. Currency Strategist
Share:

Talking Points

- With USD/JPY rallying after the BOJ rate decision, the DXY Index has been able to maintain its break of the downtrend from the December high.

- The US government shutdown has entered day 33, and there are few reasons to believe it will end before the week is over.

- Retail traders continue to fade US Dollar strength, suggesting that more gains may be left in the tank.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

The US Dollar (via the DXY Index) is pointing higher once again, turning the session’s earlier losses into a modest gain ahead of the cash equity open in New York. Even as the US government shutdown churns into day 33, “no news is [still] good news” as the flow of weak US economic data has been stemmed. As such, FX markets continue to take cues mainly from Europe – Brexit negotiations, ECB meeting tomorrow, and now, the World Economic Forum in Davos – and Asia – the state of the US-China trade war détente.

Big Day Tomorrow for the Euro: PMIs and ECB on Thursday

Thursday brings forth the preliminary January PMIs ahead of the European Central Bank rate decision, both of which should prove consequential to the Euro (which has been sidelined by a lack of data on Wednesday). In terms of the data, the preliminary January Eurozone Composite PMI is due in at 51.4 from 51.1, a modest improvement but nothing that should inspire much confidence.

In terms of the ECB meeting, it’s best to put the rate decision in context of recent price developments. Inflation expectations have been destabilized over the past few months, but the trend is especially pronounced over the past year: the 5-year, 5-year inflation swap forwards peaked in January 2018 at 1.774%; they finished last week at 1.553%. With the final December Eurozone CPI report showing topline inflation of +1.6% y/y, it’s difficult to think that ECB President Draghi and the Governing Council will be of the mindset that their four criteria for ending their ultra-loose monetary policy will be met. In particular, reality has disappointed the expectation that “inflation will be durable and stabilize around those levels with sufficient confidence.”

Whereas ECB President Draghi has previously suggested that a rate hike could materialize sometime around “summer 2019,” there is ample evidence to suggest that this event horizon will be pushed back by a few months. It seems doubtful that the Governing Council would want to make any prognostications beyond the end of this calendar year, it still being the first month of 2019 but also due to the fact that Draghi’s term expires in October. The ECB may very well keep a rate hike for 2019 on the table – for now.

Sterling’s Brexit Paradox

In the Mid-Week Trading Q&A today, one theme arose among questions regarding the British Pound: ‘why is the Pound rallying as Brexit negotiations go off the rails?’ This is a point that bears greater clarification.

To a certain extent, we’ve crossed the Rubicon now that key Brexit deadlines are around the corner (January 29 – parliament takes over Brexit negotiations; March 29 – UK set to leave EU), and as things stand, a no deal, ‘hard Brexit’ would be the default outcome. But lawmakers are skittish about leaving the EU without a deal in place, and as a result, the UK parliament has passed a motion to prevent a no deal, ‘hard Brexit’ altogether. As the options are whittled down – UK Prime Minister Theresa May has ruled out a second referendum or a general election – it seems increasingly likely that an extension will be granted. Even so, whether or not a deal can come together after another two or three months of handwringing is another question altogether.

The fact of the matter is that if Brexit is delayed or canceled – odds of that are undoubtedly rising – let’s not forget that GBP/USD was trading at $1.5000 the day of the Brexit vote in June 2016. The Sterling’s Brexit paradox is such that the more disorganized UK PM May’s government’s approach to Brexit appears, the more traders are inclined to speculate on a rebound; and when signs point to an orderly Brexit, traders have been happy to step in and sell.

Asian Headlines Impacting Gold Prices

There are two items of interest out of Asia on Wednesday that could impact FX trading through the North American trading session. First, reports have emerged that the US has spurned China’s offer for pre-negotiations before the next round of talks begin. Coupled with news that the US is pushing forward with the extradition of Huawei executive Meng Wanzhou from Canada, and it’s evident that headlines around the US-China trade negotiations have soured some over the past 48-hours. We’ll be looking for a statement from either the US Treasury Department or the White House’s National Economic Council for clarification on these matters (a soft denial on Tuesday hasn’t dismissed this issue in the slightest).

Second, the Bank of Japan meeting is proving to be consequential for the Japanese Yen following the downgrade of the central bank’s inflation forecast. Such a downgrade is not necessarily a surprise, given that the island nation is reliant on oil imports (per the most recently made available data from 2013, Japan imports 96% of the energy it uses (prior to the nuclear reactors being brought back online post-Fukushima)) and there has been a major downdraft in energy prices since the start of October.

That USD/JPY has been able to rally in the wake of the BOJ decision has been one of the tell-tale signs of an improvement in risk appetite. In turn, with global equity markets turning higher, Gold has quickly fallen out of favor (Gold and the Yen are usually highly correlated; the 5- and 20-day correlations between USD/JPY and Gold are -0.90 and -0.89, respectively). Now, Gold prices are quickly exhibiting weakness around key support that could very-well determine the next directional move.

Gold Price Chart: 4-hour Timeframe (November 19, 2018 to January 23, 2019) (Chart 1)

gold price chart

When we last discussed Gold on January 18, we said that “Broadly speaking, what is still a neutral consolidation pattern is taking on a more bearish flavorin the near-term, a move down to 1276.64 can’t be ruled out.” Earlier this week, Gold prices bottomed out at 1276.65.

Gold’s near-term forecast remains weak in the short-term, even if range support has been reached, as price continues to hold below the swing lows from January 10 and 15. For now, recent trend support is holding up: the daily 21-EMA (expressed as the 4-hour 126-EMA on the chart above) and the rising trendline from the November 28 and December 16 swing lows (confluence around 1279 today). A more significant bearish bias would not be appropriate unless a weekly close below 1276.64 is achieved.

DXY Index Price Chart: Daily Timeframe (June 2018 to January 2019) (Chart 2)

dxy index price chart

The DXY Index is maintaining altitude beyond the downtrend from the December 14 and January 2 highs, above the entirety of its daily 8-, 13-, and 21-EMA envelope in the process. Both daily MACD and Slow Stochastics are pressing high higher (albeit still in bearish territory). Yesterday’s price action nearly establish a bearish outside engulfing bar, but that was narrowly avoided.To this end, more price development is necessary to upgrade the DXY Index’ forecast to ‘bullish’ – it’s back in the consolidation from mid-October to early-January – but the improvement in US Dollar’s near-term technical prospects is real.

Read more: DXY Index Continues Push High on Back of EUR/USD Weakness

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

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

DISCLOSURES

News & Analysis at your fingertips.