USD continuing its losing strip; Euro extending gains above 1.2300; Gold at 4-month HighPosted on Wednesday, January 24 2018 at 5:43 pm GMT+0000
USD losing strip continues
The short-term budget agreement will relief the conflict between Republicans and Democrats only to Feb 6th. There are still lots of dissimilarities.
Dollar could be also weak this year. Unlike the stock market which may continue rising. I do not think the dollar could rise at last year’s pace.
The adoption of the tax reform law was the last incentive behind the dollar’s rise, and now there is no motives, which is not priced in the markets, that may support a novel rise.
The US monetary policy is getting closer to policies adopted in other countries and this will provide support to other currencies against the dollar.
After the sharp drop the dollar may witness a minor short term correction. But it would need a strong impetus to gain remarkable strength such as higher inflation or even more hawkishness in the Fed’s policy.
Euro extending gains above 1.2300
The apparent improvement in European economic data and the post-election political improvement in European countries, particularly France, prompted Draghi to announce the ECB’s intention to change its monetary policy by reducing the bond purchase program.
The Euro came under some short term pressure as Draghi’s concerns about the rising exchange rate and its impact on growth, but returned higher and broke above 1.2300, and today hit a fresh 3-years High boosted by the dollar’s underperformance.
Tomorrow, I do not expect any change in ECB’s monetary policy and Draghi’s statement might pause the recent rally. But any pullback will be seen as a buying opportunity provider. The euro has entered a new Bullish phase and will probably advance in a healthy manner this year.
Gold at 4-month High
Gold is resuming its bullish reaction and is currently trading at at 4-month High, largely benefiting from the dollar’s underperformance.
The dollar fell to a three-year low, helping to boost demand for the dollar-denominated precious metal.
All investors fearing a possible stock market correction also shifted to Gold.
I expect a the precious metal to continue its surge as long as interest rates and bonds yield remains low.
A breach of the $1365 barrier will open the way for an extended rally towards $1430 this year and if there is any major correction in the stock market and digital currencies, gold may reach much higher levels around $1,550.