The risk-on attitude that characterized currency markets over the last months, supporting gains for risk-related currencies and penalising the safe haven dollar, appears to have lost some steam. The approval of the $1.9 trillion stimulus package proposed by President Biden may not be as straightforward as some thought, as several Republican lawmakers expressed reservations over the size and long-term consequences of the proposed plan. At the same time, the coronavirus is far from under control, hindering the pace and timing of the recovery which may be slower than many anticipated. Against this background it is not surprising to see, even if it is just momentarily, the US dollar once again on the front foot.
Uncertainty is the dominant theme on the gold market currently with bullion steady with little volatility as investors wait for a new market driver. After the fall in stock seen over the last few days, traders are trying to understand if this was only a correction of if the movie just started. Meanwhile, they are not yet recalibrating their portfolio and gold is trading at around $1,850. Any further macro data or words from central bankers that suggest new monetary stimulus would be seen as positive news for the yellow metal. Moreover, any new declines in the dollar could trigger further recoveries for gold.
The risk-off mood continues in Europe on Tuesday with stocks opening lower, following the trend established by Asian shares and US futures. The bullish euphoria brought by hopes of a “back-to-normal” situation combined with significantly dovish policies from central bankers is now being tempered by delayed stimulus plans in the US and mounting virus concerns. The current dip may be the correction of the bullish excess at the end of 2020, while investors wait for further catalysts. Meanwhile in Europe the earnings season remains in full swing, causing increased volatility, with results from Microsoft, Johnson & Johnson, LVMH and AMD all due later today.
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.