Dollar stumbles, Gold extends gains

3 January, 2018

Asian stocks were mostly higher during early trading on Tuesday, after an unexpectedly upbeat survey of Chinese manufacturing activity in December stimulated risk appetite.

In Europe, shares are expected to open on a mixed note despite the gains witnessed in Asia, as investors continue to closely observe growing tensions between Saudi Arabia and Iran. With the caution from European markets potentially encouraging market players to adopt a watchful approach, Wall Street could come under some selling pressure later in the afternoon.

Dollar sinks into 2018

The Dollar dipped to a fresh three-month low against a basket of major currencies on Tuesday morning, as financial markets re-opened for the New Year.

It seems that the initial market excitement witnessed during early Q4 of 2017 over US tax reforms has diminished, while concerns still remain elevated over stubbornly low inflation levels. Although sentiment remains bullish towards the US economy amid the improving economic conditions, investors seem more concerned with tax reforms and rate hike expectations. While the Dollar was initially supported by the prospect of tax cuts being implemented, bulls may take a pause as investors investigate whether the cuts will lift growth materially in the longer run. The Dollar remains at threat of depreciating further in 2018, if the impact of Trump’s $1.5 trillion tax overhaul fails to meet market expectations.

GBPUSD punches above 1.3520

Sterling has appreciated against the Dollar in recent days, and I believe this has nothing to do with a change of sentiment towards the Pound with ongoing Dollar weakness. With the Brexit negotiations drama and political risk at home still weighing on Sterling, the current upside is likely to face headwinds down the road. Taking a look at the technical picture, the GBPUSD broke back above the 1.3520 resistance level during Tuesday’s trading session. Prices are trading above the 50 Simple Moving Average, while the MACD has also crossed to the upside. A daily close above 1.3520 could open a path higher towards 1.3600. Alternatively, a failure of prices to keep above this resistance level could encourage a decline back to 1.3440.

Commodity spotlight – Gold

Gold extended gains during Tuesday’s trading session, with prices marching to levels not seen in over three months, trading above $1308 amid a vulnerable US Dollar.

With the Dollar stumbling into the New Year under renewed selling pressure, Gold is likely to remain heavily supported, with prices potentially appreciating towards $1320 this week. From a technical standpoint, the yellow metal is bullish on the daily charts, as there have been consistently higher highs and higher lows. Prices are trading well above the 50 Simple Moving Average, while the MACD has also crossed to the upside.  The decisive breakout above $1300 has opened a path higher towards $1320. With today being the first trading day of 2018 and gold already off to a strong start, it will be interesting to see if the upside momentum elevates the metal beyond $1320 this month.

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