US Dollar Bulls Are Back in Town As Gold Buyers Could Not Rally Despite Falling US Bond Yield

Global equities are recording gains, portraying an improved risk appetite. At the time of typing, the University of Michigan Consumer Sentiment for August came better-than-estimated, at 55.1 vs. 52.5 expected, while inflation expectations for one year eased to 5% from 5.2%, while for a five-year horizon, they uptick from 2.9% to 3.0%.

The US dollar makes a solid comeback on the last day of the week and moves away from its lowest level since late June touched the previous day. This turns out to be a key factor exerting downward pressure on the GBP/USD pair, which fails to benefit from mostly better-than-expected UK macroeconomic releases.

The Preliminary GDP report, however, showed that the UK economy contracted by 0.1% in Q2 as compared to the 0.8% rise in the previous quarter. The dismal figure validates the Bank of England’s outlook that a prolonged recession would start in the fourth quarter and acts as a headwind for the British pound.

The USD, on the other hand, witnesses a short-covering move amid the uncertainty over the size of the next rate hike by the Federal Reserve. Data released this week showed signs of easing inflationary pressures in the US and forced investors to trim bets for a 75 bps Fed rate hike move in the September meeting.

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EUR/USD: EUR/USD loses the grip and returns below 1.0300. EMU Industrial Production expanded 2.4% YoY in June. US Flash Consumer Sentiment next of note in the docket.

USD/JPY: The USD/JPY daily chart portrays Thursday’s price action formed a doji, preceded by a downtrend, indicating that the downtrend is losing steam. Worth noticing the Relative Strength Index accelerated its uptrend to the 50-midline, showing that buying pressure is picking up. Nevertheless, the major remains sideways unless buyers reclaim the 50-day EMA at 135.29.

In the near term, the USD/JPY hourly chart the pair as neutral. However, price action since late Wednesday shows that the pair has begun trading upwards, but at a steady pace, as shown by the Relative Strenght Index (RSI), which could mean some things: USD/JPY shorts booking profits, after a stellar run of 700 pips downwards, and buyers slowly beginning to add to their longs, in speculation of higher US 10-year bond yield rates.

GBP/USD: Sterling is underperforming despite better-than-expected data and is currently trading near 1.2125. The GBP/USD pair could tumble to the 1.20 level, economists at BBH report.

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Stocks rose sharply on Friday, clinching the fourth straight positive week for the S&P        500 as investors celebrated signs that inflation may be peaking.

The Dow Jones Industrial Average added 424.38 points, or 1.27%, to close at 33,761.05. The S&P 500 gained 1.73% to finish at 4,280.15, and the Nasdaq Composite surged 2.09% to 13,047.19.

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Brent Oil: Following last week’s massive setback, the latest recovery of oil prices is likely to falter. According to strategists at Commerzbank, oil prices should continue declining until the year’s end. The EU oil embargo that will come into force at the end of the year will probably prevent any further price slide.

Gold: Range-bound despite broad US dollar weakness throughout the week.week. Despite losing some of Thursday’s gains, gold prices remain below $1800 thanks to declining US bond yields, which were encouraged by earlier US inflation data released earlier in the week. The fact that consumer and wholesale prices are showing signs of easing could deter the US Federal Reserve from tightening aggressively. At the time of writing, the XAU/USD is trading at $1794.49 a troy ounce.The price of a troy ounce of the XAU/USD at the time of writing is $1794.49

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Watch Out This Week

  • Technical outlook during the last week, XAU/USD prices consolidated in the $1783-$1807 range. It’s worth noting that despite the lower US inflation data reported, which propelled lower US bond yields, gold could not break the range and push towards the confluence of the 100 and 200-day EMAs, around the $1837-$1842 area. If XAU/USD breaks above $1807, traders could expect gold to test the latter. Otherwise, if the gold price continues below $1800, a move towards the 20-day EMA at $1753.49 is on the cards

  • On the 16th, major news affecting currencies like GBP, CAD, and USD will emerge. Among them, Britain’s unemployment rate and employment change are quite relevant.

  • On the 17th Aug, US retail news will come out along with Europe’s employment data. Thus, these events will impact the currencies like USD,EURO.
Abhi Sinha
Abhi Sinha

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