After another positive day, markets are cautious on Tuesday, sending the dollar up and everything else down. Fed Chair Powell said the recovery is patchy and supply problems seem to slow US growth. Cryptocurrencies, gold and oil are all struggling.
The US dollar is gaining ground across the board, despite a slide in Treasury yields. Returns on 10-year bonds are around 1.61%. Jerome Powell, Chair of the Federal Reserve, poured cold water on the recovery and stressed that low-income people are still struggling to return to work. His colleague John Williams also said that the US economy has a long way to go.
The US ISM Manufacturing Purchasing Managers’ Index disappointed with 60.7 points, with comments showing that companies are struggling with higher prices and supply chain issues. Factory orders figures for March on the agenda.
EUR/USD is changing hands closer to 1.20 as the EU is considering lifting some travel restrictions. GBP/USD is battling 1.39 ahead of Markit’s final Manufacturing PMI for April.
Gold is trading below $1,790 after rising toward $1,800 on Monday. WTI Crude Oil is trading around $64, below the highs.
The Reserve Bank of Australia left its interest rate unchanged at 0.1% and said I would consider changes to its bond-buying scheme in its July meeting. AUD/USD is trading above 0.77, yet below the highs.
Gold (XAU/USD) hit fresh three-month highs at $1798 on Monday, kicking off the week on a solid footing. In Tuesday’s trading so far, gold has eased off the multi-month highs, consolidating the recent upsurge heading into a fresh batch of US economic data. In the view of FXStreet’s Dhwani Mehta, XAU/USD looks north amid a potential bull flag and lower yields.
All eyes on the US economic data for fresh cues on the dollar and gold
“The US ISM-NY Business Conditions Index, Factory Orders and Trade data will offer fresh hints on the economy, which will have a strong bearing on gold prices. In the meantime, Fed Chair Powell’s comments and US dollar bounce keep the metal on the defensive, although weaker yields will likely remain supportive of the recent uptrend.”
“Gold has carved out a classic bull flag on the hourly chart after Monday’s rally that followed a brief consolidation in Tuesday’s Asian trading.”
“The Relative Strength Index (RSI) has turned south but remains well above the midline, keeping the upbeat momentum intact.”
EUR/USD has dropped off the highs, surrendering to dollar strength. According to FXStreet’s Yohay Elam, a bear attack on 1.20 looks imminent as markets see glass half-empty.
Upbeat news coming from Brussels is insufficient to help the euro
“The old continent’s vaccination campaign is picking up speed, but that seems to already be in the price. Instead, markets seem to focus on some sober comments from Jerome Powell, Chair of the Federal Reserve. Despite acknowledging America’s recovery, the powerful central banker characterized this upswing as ‘patchy’ and stressed that unemployment among those earning less is still elevated.”
“The comeback from the pandemic could be too quick to handle and may require some cooling down. These worries are weighing on the market mood and pushing the safe-haven dollar higher. Will it continue? Overall, supply bottlenecks should be resolved and so should issues related to the virus. However, in the shorter run, various issues will likely cause jitters, and that could push the greenback higher.”
24-hour view: “We expected USD to ‘advance further’ yesterday but we were of the view that ‘overbought conditions could ‘limit’ any gains to a test of 109.60’. We highlighted that ‘a move to the next major resistance at 109.95 would come as a surprise’. While our view was not wrong as USD rose to 109.69, we did not anticipate the subsequent sharp sell-off (USD plummeted to 108.88 during NY hours). The rapid decline appears to running ahead of itself and USD is unlikely to weaken much further. From here, USD is more likely trade sideways between 108.80 and 109.40.”
Next 1-3 weeks: “Yesterday (03 May, spot at 109.30), we indicated that ‘the upward bias in USD is still intact’. We added, ‘the next resistance is at 109.60 followed by a major level at 109.95’. USD subsequently advanced to 109.69 before staging a surprisingly sharp pullback. While upward momentum has waned, only a break of 108.55 (no change in ‘strong support’ level) would indicate that the positive phase has ended. Until then, there is scope for the current USD strength to extend to 109.95 even though the prospect for such a move is not high.”
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