2021-10-15 • Updated
The rally of the US dollar has stopped for a while. That allowed risk-on assets (GBP, NZS, AUD, stocks) and also gold to recover some losses. Gold and the US dollar have a negative correlation. When the USD weakens, gold tends to rise, and vice versa. Traders are interested in the further movement of the US dollar as almost the entire market sentiment will depend on it.
Let’s understand why the market sentiment has improved. There is no clear catalyst for this turnaround in investors’ mood. We may assume that one of the reasons is the ongoing earnings season. Investors are concerned about global economic growth because of the high energy prices, supply chain problems, and inflation pressure. That worries were outweighed by the better-than-expected earnings results of companies.
Is the current weakness in the USD short-lived? Could be! The Federal Reserve is going to start tapering already in November and raise rates in 2022. According to Crédit Agricole, the higher interest rates in the US can push the USD up as 1) it will reduce the USD liquidity and 2) increase demand for the dollar as its yields will increase.
*Earnings season is the period when companies uncover their financial results for the previous quarter.
If the forecast of Crédit Agricole is correct, we might expect USD/JPY to rally up to 115.00 and then higher and higher.
What about EUR/USD? The pair is likely to keep trending down. If it breaks the low of late September at 1.1570, it may fall to October trough at 1.1525 and then to the psychological mark of 1.1500.
What does it mean for gold? The continuation of the downtrend as well. If it manages to break below the support zone of $1740-1750 at October lows and the 23.6% Fibonacci level, the doors to the September low at $1725 will be open.
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Gold prices, reaching the highest since May 5, are consolidating as traders await the US PCE Price Index, a key inflation indicator. The upcoming data could impact the Fed's policy, influencing the demand for the US Dollar and providing direction for gold. The Greenback sees some repositioning, recovering modestly ahead of the data risk.
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Don’t waste your time – keep track of how NFP affects the US dollar and profit!
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