Market Beat: Precious Metals tumble as Dollar Rises Again

January 21, 2016

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Market Beat: Precious Metals tumble as Dollar Rises Again

This article is originally referred from FXGlobe Daily Analysis

The Japanese Yen and precious metals were in the center of attention yesterday as safe haven assets were sharply lower all day long. The Yen continued to decline against most of its major peers, while silver and gold took another hit after an already long correction. The Australian Dollar and the New Zealand Dollar both got lower again on Wednesday and the kiwi is down today in early trading as well, although the Aussie rebounded following two days of losses.

The U.S. Dollar gained ground against most of its counterparts as traders were preparing for today’s European Central Bank meeting that might have a strong effect on the common currency, especially if Mario Draghi announces new easing measures. Oil had a volatile but slightly bullish day providing mixed signals for commodity currencies, while the pound rebounded following a number of positive releases, helping risk assets to rally again following a shallow correction.

GBP/USD (current price: 1.3223)

The British Employment Report continued the string of positive surprises as both payrolls and the Unemployment rate came in better than expected. Unemployment now stands at 4.9%, after the small down-tick from the previous reading of 5%. The next move by the Bank of England remains a big question, as the bank pledged further easing in August, should economic measures deteriorate, but the recent releases showed a resilient British economy.

Our assessment: The Pound bounced higher before today’s ECB meeting as the low volatility environment helped the currency. The move might continue today, especially if the central bank introduces further monetary easing.

Cable still trading between 1.30 and 1.35 on the Daily Chart, Created by FxGlobe MT4

Cable still trading between 1.30 and 1.35 on the Daily Chart, Created by FxGlobe MT4

EUR/USD (current price: 1.1024)

The Eurozone Current Account Balance came in at a surprisingly high 30.8 billion, compared to the consensus estimate of 24.9 billion. The relatively weak Euro and the struggling Chinese economy mean that the trend might continue in the coming months. The German PPI also beat expectations with a reading of 0.4%, while Consumer Confidence was in line with expectations. The pair traded in a narrow range just above the 1.10 level, before today’s crucial announcement, as the long-term picture remains neutral.

Our assessment: The most traded pair still trades in a narrow consolidation zone following the decline after the Brexit vote, but volatility might jump today after the ECB’s releases.

EUR.USD trading just below the 200-day MA on the Daily Chart, Created by FxGlobe MT4

EUR.USD trading just below the 200-day MA on the Daily Chart, Created by FxGlobe MT4

USD/CAD (current price: 1.3045)

The Canadian Dollar still trades around the all-important support/resistance level near 1.3015, as the currency continues to closely track the movements of oil. The pair got higher on Wednesday as oil fell in early trading, but the better than expected U.S. Crude Inventories number reversed some of the early movements. The cross ended the day slightly in the green, as the long-term picture remains neutral, with the broad trading range between 1.2650 and 1.32 still being intact.

Our assessment: USD/CAD has been trending higher in recent days and a re-test of the key resistance near 1.32 might be in the cards now, especially if oil continues its correction.

USD/CAD back above the 1.30 level on the Daily Chart, Created by FxGlobe MT4

USD/CAD back above the 1.30 level on the Daily Chart, Created by FxGlobe MT4

Gold (current price: $1315.00) and Silver (current price: $19.33)                               

Precious metals continued their correction to the downside yesterday after a relatively long period of sideways action, and hit 4-week lows as Brexit fears continue to ease. The metals are still in advancing long-term trends, despite the recent positive trends in risk-on currencies and global stocks. Central banks continue to hold interest rates on record lows, and the Bank of Japan and the Bank of England are likely to further expand their “unconventional” quantitative easing measures in the coming weeks.

Our assessment: Silver broke below a steep advancing trend-line last week and the metal continued lower to test the short-term support near $19.35, with another strong level looming near $18.

Silver after an almost 10% correction on the Daily Chart, Created by FxGlobe MT4

Silver after an almost 10% correction on the Daily Chart, Created by FxGlobe MT4

Economic Releases

The most awaited event of the week will take place today, as the European Central Bank will hold its first monetary policy meeting since the Brexit vote early in the afternoon. Analysts expect no change regarding the benchmark interest rate of the bank, but some new measures might be enacted in reaction to the new risks posed by the referendum. The Philly FED Manufacturing PMI will also come out later on today, while the British Retail Sales will also be closely watched before that during the morning session.

Original Source: FXGlobe Daily Analysis

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