The Dollar Index reached an eight-week high during early Wednesday trading. The greenback’s strength largely results from weakness elsewhere. Investors are dumping the euro and the pound as the virus seems once again to be out of control, with a new economic shock looming on the old continent’s horizon.
At the same time, support offered by hawkish comments made by the Chicago Fed President, alluding to inefficiencies of quantitative easing and the possibility of raising interest rates before inflation averages 2%, also helped to increase the appeal of the dollar.
The turmoil on stocks seen earlier this week and particularly the greenback’s recovery are hitting gold. The Dollar Index gained by 1.5% to 94.2, which was enough to generate a sharp fall for the yellow metal. The sharp decline below $1,920 demonstrated a weakness for bullion, something not seen for quite a few weeks, with the price then plummeting too easily to $1,880 with increasing volatility.
Technically, we are now approaching the support zone at $1,860, which generated a strong rebound earlier in August. This is an important area to monitor, in order to understand if bullion can remain in the trading range of $1,860-$2,070 of the last few weeks. We should anyway remember that central banks’ policies are not yet changing, and ultra-low rates will last for a long time. In other words, we should probably be cautious before calling the end of the golden age for gold.
Carlo Alberto De Casa – Chief analyst, ActivTrades
EUROPEAN SHARES
Stocks opened significantly higher in Europe this Wednesday, validating some key technical support levels, while Asian markets closed on a mixed tone and US Futures remained steady. The global sentiment towards riskier assets remains uncertain for the end of September and is the reason for the current lack of market directionality as well as the neutral mid-term trends over European assets.
While most European indices remain neutral to bullish and haven’t broken any significant support levels so far, the FTSE-100 Index in London remains deeply impacted by both Brexit and the prospect of another lockdown, especially after the UK Government said this option couldn’t be ruled-out.
Even if the market is trading 1.3% higher today, boosted by healthcare and tech stocks, prices have already retraced 38.2% of the bullish trend registered between March and June. Now traders fear demand could soon drop in the energy and travel & leisure sectors before year-end if further restriction measures are implemented.
