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January
26
2019

Gold hits $1300 as dollar slumps
Fawad Razaqzada

There are a number of factors supporting gold prices at the moment, most notably a big drop for the US dollar. The US dollar has weakened sharply ahead of next week’s FOMC meeting amid growing expectations that the Fed will re-iterate the need to pause its hiking cycle. We have been growing negative towards the buck for a while now and this dollar sell-off does not surprise us at all.

The sell-off has been blamed on a Wall Street Journal report, which suggests that the Fed could be taking a more cautious approach towards the shrinking its huge balance sheet.

Among the dollar pairs, EUR/USD has surged back to 1.14 after briefly breaking the 1.13 handle in the aftermath of the ECB policy decision yesterday.  As we mentioned previously, a dovish ECB was already expected but Mario Draghi was not exactly too dovish after all. So, the euro’s recovery makes sense as previously sentiment towards it was very negative. In addition to a weaker dollar boosting buck-denominated gold, you have the Chinese yuan being on the rise on hopes over a resolution in US-China trade dispute. With a stronger renminbi, Chinese consumers can buy more gold than was the case previously.

The fact that gold has so far refused to go down meaningfully from around the $1295-$1300 resistance area suggests that the selling pressure has not been strong as some would have expected from around this key hurdle. So, as things stand, gold looks poised for a potential breakout above $1300, which could then lead to further technical follow-up buying pressure in early next week.

Fawad Razaqzada is FOREX.com’s technical analyst based in London. He entered the FX market in early 2010. Having graduated from Brunel University with a degree in economics, and mentored by some of the industry’s leading experts, he has an excellent understanding of the fundamental drivers of the markets. But it is his unique ability to predict price moves using technical analysis that has made him popular amongst his peers. Fawad is regularly quoted in the leading financial publications such as the Wall Street Journal, Reuters, Market Watch, FT and Associated Press. On a day to day basis, Fawad produces and delivers market commentary and research for FOREX.com, with an emphasis on technical analysis. Fawad also trades on his own account..

 

 

 

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