USD Strengthens While Gold’s Dive Lower Continues

Mar 02 21, 10:42 GMT

The USD Index reached a three-week high yesterday characterizing USD’s strengthening against a number of its counterparts yesterday, while gold’s dive lower seems to continue, as markets expect a faster growth and inflation rates for the US economy. The greenback strengthened in the past few sessions along with US government bond yields which are now correcting lower, also boosted by the US Government’s plan for a new fiscal stimulus, and as vaccinations against COVID-19 become more widespread. Overall, we are highlighting the gains of the USD which seem to be based on interest rate differentials and given that the Biden administration’s $1.9 trillion fiscal stimulus plan goes ahead, yet that is for the US Senate to decide. It should be noted though that Richmond Fed President Barkin yesterday warned against investors getting ahead of the Fed in anticipating monetary tightening as the economy improves, yet at the same time warned for increased inflationary pressures in Q2-Q3. Given the lack of high impact financial releases today from the US we may see fundamentals being in the driver’s seat for the greenback’s direction.
The USD Index continued to rise and despite some hesitation, broke the 91.07 (S1) resistance line, now turned to support, and has reached a high point not seen since the 5th of February. As long as the upward trendline incepted since the 25th of February continues to guide the index, we maintain our bullish outlook. It should be noted though that the RSI indicator below our 4-hour chart remains at the reading of 70, confirming the bull’s dominance, yet may also imply that the index is at overbought levels and correction lower is possible. Should the bulls actually maintain control over the USD Index, we may see it breaking the 91.65 (R1) resistance line, aiming for higher grounds. Should the bears be in charge of the index’s direction we may see it reversing course breaking the prementioned upward trendline, the 91.07 (S1) support line and aim for the 90.55 (S2) support level.

AUD resists USD’s strengthening

The Aussie remained largely unchanged against the USD yesterday, given also that RBA remained on hold at 0.10%, keeping its monetary policy unchanged as was widely expected. In Governor Lowe’s statement a dovish tone was kept, and it was highlighted that the board does not expect tight labor market conditions currently and inflation to return sustainably at the 2-3% level until 2024 the earliest. Copper prices continue to fall maybe pressured by a slowdown of economic activity from China’s manufacturing sector, which is a negative for the Aussie, yet some comfort exists as iron ore prices are stable at relatively high levels. As RBA’s interest rate decision is out, Aussie traders may be keeping an eye out for tomorrow’s GDP release.

AUD/USD maintained a sideways motion yesterday as was expected, between the 0.7725 (S1) support line and the 0.7785 (R1) resistance level. Given that both boundaries remained intact, we maintain our bias for a sideways motion yet we note that RSI indicator below our 4-hour chart remains between the levels of 50 and 30, reminding us for the presence of the bears. Should a selling interest be displayed, we may see AUD/USD breaking the 0.7725 (S1) support line and aim for the 0.7665 (S2) level. On the flip side should buyers have the initiative over the pair’s direction, we may see AUD/USD breaking the 0.7785 (R1) resistance line and aim for the 0.7875 (R2) level.

Other economic highlights today and early Tuesday:

Today during the European session, we note Germany’s retail sales growth rate for January, UK’s nationwide house prices for February and Eurozone’s preliminary HICP rate for February. In the American session we note Canada’s GDP rate for Q4, while later on Fed Board Governor Brainard (18:00, GMT), San Francisco Fed President Daly are scheduled to speak. During Wednesday’s Asian session, we get Australia’s GDP rate for Q4 and from China the Caixin Services PMI for February, while BoJ board member Kataoka is scheduled to speak.

USD Index H4 Chart