After gaining ground to other major currencies during the first half of the week, the US dollar is on the back foot during the start of Thursday’s trading session. This change in dynamic came after the publication of the minutes for the Federal Reserve’s last meeting, where it became clear that despite the central bank’s optimistic expectations for economic growth in 2021, it has no intention to review its accommodative monetary policy or purchase program. The topic of inflation has recently been trending amongst investors, with many selling low coupon bonds and driving a rise in yields and subsequently increasing dollar demand, as they moved to price in a potential change of stance from the Fed. However, the Fed has no such concerns and, according to the minutes published yesterday, appears determined to maintain its current course of very low interest rates and large bond purchases, which creates scope for further dollar weakness.
The weather remains sunny on stock markets, but not for gold. Indeed, after an excellent 2020, we are seeing a little storm on bullion, hit by the recovery of US yields and by the strength of the optimism that is dominating share trading. After five days in a row in red, we are seeing a small rebound attempt, despite the short-term trend remaining bearish. Technically the yellow metal has lost the support placed at $1,790 and could now target the next key zone, which is the low reached in late November 2020 at $1,764. A test of these levels will be crucial for understanding if the bearish pressure has ended or if gold fever is slowing down. Considering the massive monetary stimulus injected into markets by central banks, this second scenario seems unlikely.
European benchmarks continued to consolidate on Thursday as investors fear rising bond yields will increase the cost of borrowing money and impact the short-term outlook of some companies and the broader stock rally in the medium-term. However, the long-term outlook for an economic recovery is much more positive and likely to support risk-on sentiment, making the current market correction a short pause before reaching new highs. Mining and tech shares are among the most resilient sectors today, while traders wait for results from banking and other cyclical values like EDF, Air France, Barclays and Credit Suisse later today. On the other side of the Atlantic, traders will pay close attention to macro US data (initial jobless claims, Fed manufacturing index and crude oil inventories) to see if the recent economic momentum is continuing.
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.