Gold received a thorough pummelling during trading on Wednesday with prices sinking to levels not seen in over 9 months at $1181.45 as Dollar’s resurgence encouraged bears to attack ruthlessly. Wednesday’s hawkish FOMC meeting minutes coupled with repeatedly positive economic data from the States have fortified expectations of a US rate hike consequently pressuring even Gold further. It should be kept in mind that the zero-yielding metal remains extremely sensitive to US rate hike expectations and with Fed funds pricing in a 100% probability of a December rate increase, steeper declines could be the new norm for Gold moving forward.
When studying the metal in a technical fashion, prices can be said to be extremely bearish on the daily timeframe. The candlesticks are trading below both the 20 and 200 SMA while the MACD trades to the downside. Previous support around support around $1200 could transform into a dynamic resistance which could trigger another decline lower towards $1170.
Dollar jumps to 14 year high
Dollar bullish investors received a welcome boost on Wednesday following the string of positive U.S economic data releases which elevated sentiment towards the US economy and reinforced expectations of a December rate hike. Wednesday’s hawkish FOMC meeting minutes showed that policy makers agreed that it “could become appropriate” to raise rates relatively soon, and this gave investors the final bit of long sought clarity ahead of December’s Fed meeting. With most members even arguing that failing to raise rates in December could tarnish the Federal Reserve’s credibility, bulls may run rampant consequently keeping the Greenback buoyed.
From a technical standpoint, the Dollar Index remains heavily bullish on the daily timeframe with a breakout above 102.00 encouraging another incline higher towards 103.00.
Currency spotlight – USDJPY
The combination of Dollar strength and Yen weakness amid the Trump effect has sent the USDJPY gravity defying levels with prices hovering around 113.00 as of writing. This pair is very bullish on the daily timeframe as prices are trading above the daily 20 SMA while the MACD has crossed to the upside. Dollar strength from the skyrocketing US rate hike expectations could be the engine which drives the USDJPY to levels not seen since February 2016 above 115.00. A sharp breakout above 113.00 could spark a further incline towards 115.00 in the coming weeks.
Lukman Otunuga, research analyst at FXTM