The dollar is showing some weakness in relation to other major currencies during early Wednesday trading, retreating after reaching fresh multi-month highs earlier in the session. Today’s dollar dynamic illustrates perfectly the correlation between the greenback’s performance and the yield of the 10-year Treasury note, which also retreated slightly after reaching 1.78% on Tuesday. This correlation will play an important role in the near future, as investors fearing the return of inflation are likely to continue the ongoing bond market sell-off, driving up yields and strengthening the dollar in the process.
Gold extended its loss and tested the key support zone of $1,675. This level generated a small rebound, pulling the price up to $1,685. The main trend remains bearish and a clear break down of the support at $1,675 could open space for further declines while only a recovery to $1,750 would reverse the main negative trend. We should also note that earlier this month as soon as the price fell below $1,700, buyers showed strong interest for bullion but so far this hasn’t happened on this latest dip. It is also worth noting that the strength of the US dollar is not helping bullion, while inflation risks and tapering remain dangerous elements for gold.
European shares had a mixed opening on Wednesday, following another session of declines in Asia, as traders brace for a busy day. A hesitant trading mood is prevailing on stock markets so far as investors wait for President Biden’s new $2 trillion infrastructure stimulus plan that will be unveiled later today. In addition, many energy shares traders and commodity investors are waiting for major macro news on oil markets from both the OPEC meeting and the latest US crude oil inventories data.
This week’s mixed sentiment is broadly a reflection of lingering inflation concerns. It is even more true in the US where the vaccine roll-out is exceeding targets, leading investors to anticipate increased US inflation sooner than in Europe on the prospect of a sharp recovery. Paradoxically, the resurgence in virus spikes and renewed lockdowns on the Old Continent may benefit stock traders and drive prices up, as many continue to price in that the ECB will keep on supporting the market.
Pierre Veyret– Technical analyst, ActivTrades
Disclaimer: opinions are personal to the authors and do not reflect the opinions of LeapRate. This is not a trading advice.
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.