The Dollar Index reached a 2 and a half year low during early Wednesday trading. The market sentiment is currently dominated by an increase in risk appetite, as vaccine-driven optimism and the prospect of an agreement in Washington about the economic stimulus package are keeping investors in high spirits. Such climate is negative for the safe-haven greenback, with traders turning their back on the dollar and embracing riskier currencies.
The bullion price has rebounded in the last few hours on the back of a combination of market drivers. Firstly, the weakening of the US Dollar is lifting up the price as investors are betting on further declines for the greenback, which is proving a supportive element for gold and other assets priced in dollars. On top of this, the Covid-19 story is far from finished. Despite the vaccine, the pandemic is continuing to show growing numbers in many countries. This will generate further intervention measures of central banks as investors well know with gold retaining its role as a haven asset in both the medium and long-term.
Finally, the price decline of the last few weeks has generated a recovery in physical demand from traditionally the most active markets of China and India. In this scenario bullion has jumped above $1,820, while the first key resistance is the former support zone of $1,850-$1,860.
European markets drifted lower on Wednesday, alongside US Futures and following a mixed trading session in Asia overnight as rising uncertainty drove market sentiment down. Today’s uncertainty comes from both the new world and the old continent and has put a significant pressure on automakers and banking shares. Investors have first been disappointed by Joe Biden’s words about China after he said he will not remove the tariffs immediately, which spurred concerns over the future of the US-Sino trade relationship. In addition, Brexit talks added to this uncertainty after investors witnessed the possibility of a “no-deal” Brexit following Michel Barnier’s latest comments. Even if no sharp downside price action has yet been seen on European benchmarks, both market volatility and directionality have faded significantly over the past few days, as investors take a break as they wait for clearer clues on where global economies are going. That said, there remains a good chance that markets will achieve fresh highs as soon as the current short-term uncertainty lifts. The Stoxx-50 Index is still trading sideways between the strong 3,475-3,500pts level and the first available resistance at 3,535pts.
Pierre Veyret– Technical analyst, ActivTrades
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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.