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Dollar Struggles for Direction: Gold Eyes $1,280

Lukman Otunuga
Dollar Index is close to the upper limit of its 6-months trading range. GBPUSD remains trapped between MA200 and 1.30. Oil has jumped at the start of the week by 3%: WTI – $66, Brent – $73.70.

The March industrial production and retail sales data, along with the latest Markit Purchasing Managers Index, are expected to continue signaling a resilient US economy, justifying the Fed’s “patience” on interest rates.

Given the robust data, markets have also dialed back on expectations for a December Fed rate cut to 40 percent, compared to the 55 percent odds that were seen in the Fed Funds Futures last week.  Even as risk-positive sentiment creeps back into the markets, the Greenback remains supported by underlying concerns over a slowdown in the global economy, coupled with fears over rising global trade tensions.

However, when taking a look at the medium to longer-term outlook, the Dollar remains pressured by a dovish Federal Reserve, lingering growth concerns and US-China trade developments. In regards to the technical picture, the Dollar Index (DXY) has repeatedly failed to break above the 97.70 resistance level. If this point proves to be a reliable resistance, then prices are likely to slip towards 96.00 in the medium term.

Commodity spotlight – Gold

Gold is on course for testing the $1,280 support level yet again, as the resilient US Dollar makes it harder for the precious metal to hang on to gains.

Broadly, global risk sentiment has been supported by China showing signs of stabilizing and hopes that the US-China trade saga will conclude with a breakthrough deal. However, with the ECB and the IMF warning that growth risks remain tilted to the downside, markets do not yet have the all-clear for charging into a risk-on mode. This alone should provide support for Gold prices at the $1280 floor.

Currency spotlight – USDCNY

The Chinese Yuan’s stability against the US Dollar since late February has been in stark contrast to the volatility seen in the wider emerging market space during the same period. The positive surprise in China’s March export figures released last Friday was another sign that China’s economy is stabilizing, which may allay broader concerns over the global economy.

Tier-one data releases from China on Wednesday including Q1 GDP, March industrial production, and retail sales data may help keep the Yuan stable around the 6.70 level against the US Dollar. Rising hopes of a near-term US-China trade deal, as well as the anticipated effects from stimulus measures on China’s domestic consumption, should also solidify support for the Chinese currency, which could also feed into broader market appetite for Asian EM currencies.

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This article was originally posted on FX Empire

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