USD Gains On Brighter Outlook

Feb 18 21, 10:52 GMT

The USD tended to gain against a number of its counterparts yesterday as financial data implied a better-than-expected situation in the US economy. It’s characteristic that the retail sales growth rate outperformed market expectations reigniting worries for an acceleration of inflation, while the slowdown of industrial output for January was not as bad as initially forecasted. Monetary wise the Fed’s last meeting minutes had little if any surprises yet reaffirmed the bank’s dovish stance and focus on the employment market. It should be noted that US Treasury yields reversed some gains yet are still near 1-year high levels. Today we may see traders focusing on the financial data releases for further clues however also Fed policymakers are scheduled to speak.

USD/CHF rose yesterday, breaking the 0.8935 (S1) resistance line, now turned to support, before stabilizing in the late American and Asian sessions, after breaking the upper boundary of the Bollinger bands. We tend to maintain a bullish outlook for the pair, yet it should be noted that the RSI indicator below our 4-hour chart is at the reading of 70, confirming the bull’s dominance but at the same time may imply that the pair is overbought and a correction lower is possible. Should the bulls maintain control over the pair, we may see USD/CHF breaking the 0.9010 (R1) resistance line and aim for the 0.9090 (R2) level. Should the bears take over, we may see USD/CHF breaking the 0.8935 (S1) and aim for the 0.8855 (S2) level which provided support for the pair from the 21st to the 25th of January.

Gold prices drop

Gold prices dropped yesterday with sellers spurred by a stronger USD, yet during today’s Asian session the precious metal started regaining some of the lost ground as US yields were on the retreat thus lowering the opportunity cost for gold holders. At the same time the market’s expectations for higher inflation boosted also by an acceleration of the retail sales tended to increase the attractiveness of gold as a hedge instrument against inflation. On the other hand, the US President reiterated that his planned fiscal stimulus of $1.9 trillion would create millions of jobs, boosting expectations for quicker recovery of the US economy. If the USD continues to strengthen, we may see gold’s prices retreating further, while a further retreat of the US yields could enhance gold’s value.

XAU/USD dropped yesterday yet bounced on the 1775 (S1) line which reversed the precious metal’s downward direction at least temporarily. We tend to maintain our bearish outlook for gold’s prices, yet the RSI indicator below our 4-hour chart, has reached the reading of 30 implying that sellers clearly have the upper hand, yet the precious metal may have reached an oversold status and an extension of the correction higher is still possible. Should the precious metal find fresh buying orders along its path, we may see it breaking the 1800 (R1) resistance line and aim for higher grounds. On the other hand, should the selling interest of the market be renewed, we may see gold’s prices breaking the 1775 (S1) support line and aim for the 1747(S1) support level.

Other economic highlights today and early Tuesday:

With a heavy calendar ahead, we note in the European session, Sweden’s CPI rates for January and later on from Turkey CBRT’s interest rate decision, which is expected to remain on hold at 17%. In the American session, we get from the US the weekly initial jobless claims figure, the Philly Fed Business index for February, the number of house starts and building permits for January and the weekly EIA crude oil inventories figure. Also note that today BoE’s Saunders, Fed Governor Brainard, Atlanta Fed President Bostic and ECB’s Schnabel are scheduled to speak. During tomorrow’s Asian session we note from Australia the preliminary PMIs for February and the preliminary retail sales growth rate for January, while from Japan we get the CPI rates for January and the Jibun Manufacturing preliminary PMI for February.

USD/CHF H4 Chart