USD Slips, Gold Soars

Dec 17 21, 09:20 GMT

The USD tended to weaken against a number of its counterparts yesterday as BoE and ECB adopted a more hawkish tone in their respective interest rate decision, altering the interest rate outlook differentials. It should be noted that US yields also seemed to slip weakening the USD, which on the other hand provided tailwinds for gold’s price to fly and the precious metal seems about to end its best week since mid-November.

Also, analysts tend to note that inflationary pressures in the US economy may still outweigh the Fed’s stance despite the bank performing a hawkish pivot forecasting three rate hikes in 2022. Also, financial releases yesterday from the US tended to disappoint traders given that various indicators seem to point towards a slowdown in the expansion of economic activity in the US. Today given the lack of high impact financial releases from the US, we expect fundamentals to take over and we note the planned speeches of San Francisco Fed President Daly and Fed Reserve Board Governor Waller, while EUR traders may be more interested in Germany’s Ifo indicators for December.

XAU/USD was on the rise yesterday breaking the 1793 (S1) resistance line now turned to support. We tend to maintain a bullish outlook for the precious metal given also the bullish sentiment as the RSI indicator below our 4-hour chart is at the reading of 70, which could also be implying that he pair is near overbought levels and ripe for a correction lower. Should the precious metal continue to be guided by buyers, we may see its price breaking the 1815 (R1) resistance line and open the way for the 1830 (R2) level. Should a selling interest be displayed for gold we may see its price reversing course breaking the 1793 (S1) support line and aim for the 1770 (S2) support level

BoE’s hike supporting the pound

The pound found some support yesterday, strengthening against the USD but also JPY, as BoE proceeded with a 15-basis points rate hike. Despite the Omicron variant still posing a threat for the recovery of the UK economy, the rate hike still seems to be making sense given the strong inflationary pressures in the UK economy as well as the tightening of the UK employment market . So, in the big picture BoE’s monetary policy seems to remain supportive for the pound as the bank seems to be tightening it. On the fundamental level, besides the path of the pandemic in the UK we also note that over the weekend, UK and EU officials meet online to discuss impasse over Northern Ireland’s trading arrangements and should the disagreements resurface we may see the pound weakening.

We still see the political situation of the UK government as being shaky due to the scandals, a recent rebellion of Torrie lawmakers and the loss of a parliamentary seat in an election that was considered key, yesterday. As for financial releases we may see pound traders focusing on the release of the UK retail sales growth rate for November.

GBP/USD rose yesterday rose breaking the 1.3280 (S1) resistance line, now turned to support. Despite the stabilisation the RSI indicator below our 4 hour chart is between the readings of 50 and 70 implying that the bulls may have an advantage. Should more buying orders be placed for cable we may see the pair breaking the 1.3430 (R1) resistance line and aim for the 1.3600 (R2) level. Should a selling interest be displayed by the market we may see the pair breaking the 1.3280 (S1) line and aim for the 1.3160 (S2) support level.

Other highlights for today

Today we note the release of Germany’s PPI rates for November, Ifo’s indicators for December and Eurozone’s final HICP rate for November, while from the UK we get the retail sales growth rate for November. In the American session, we note the planned speeches of San Francisco Fed President Daly and Fed Reserve Board Governor Waller.

XAU/USD H4 Chart