Chances for a Euro recovery are easing, while gold continues to shine

Chances for a Euro recovery are easing, while gold continues to shine

Chances for a Euro recovery after last week’s declines are easing.

After having capitalized on the dollar’s weakness, the Euro retreated amid the recent slowdown in growth and weak economic releases in the euro zone, and now deepened the decline amid political glitches and the same time pressured by European Central Bank’s decisions.

Political risks are growing, especially in Spain. Italy is sorrowing recession and Germany will suffer if the United States imposes tariffs on its imports of foreign cars.

On the other hand, hints by the European monetary policy makers to new probable steps after the markets started expecting tightening in the second half of this year, added some more pressure to the single currency. Policy makers have moved from talking about tightening monetary policy to talking about postponing the tightening process, and now they are talking about easing again, so the euro may experience deeper declines, especially if it managed to break the 1.1200 support level.

As per the FOMC meeting minutes, I do not expect anything new from what we have heard from Powell, and the members of the Committee have recently referred to. But an important point must be watched, if the reference “further gradual rate hikes may be needed” had been dropped, that would be an indication to an end of the monetary tightening cycle for the coming period. Any pessimistic statements will have a negative impact on the dollar and will pave the way for further declines.

Gold has been on a bullish path since late last year and yesterday extended its gains and sailed past 10-month highs. The supporting factors for that move are:

1. The increasing dovishness of central bankers, specially the Fed and ECB members.
2. Persistent fears of a slowdown in global growth.
3. The Brexit, in turn, has affected markets and pushed some investors towards risk aversion.
4. The dollar’s weakness.

In addition to these factors, the markets are witnessing an increase in the demand for gold, which is reflected in the gold’s advancements, despite the strength of both stocks and dollar.