Gold gapped down on Monday but, with Dollar still vulnerable to further losses, the yellow metal will likely remain supported long-term.

Gold lost some of its sparkle on Monday, having hit its highest level in over a year in the previous session as risk appetite flickered back to life.

The market players who were bracing for North Korea to conduct another missile launch over the weekend to mark the country’s founding day, received a relief when Pyongyang decided to hold a celebration instead. This reprieve has rekindled appetite for riskier assets, supported the Greenback while punishing safe-havens such as Gold. While the yellow metal may continue to edge lower amid the risk-on trading environment, the lingering air of caution is likely to limit downside losses.

The Dollar is still vulnerable to further losses, as expectations rapidly fade over the Federal Reserve raising US interest rates in December, so Gold is likely to remain supported moving forward. Further upside is still on the cards, especially when considering how heightened political uncertainty in Washington, geopolitical tensions and Brexit concerns continue to stimulate the flight to safety.

From a technical standpoint, Gold bulls are still in the game despite the nasty drop from over the weekend.  A breakout above $1340 should encourage a further appreciation higher towards $1350. In an alternative scenario, a breakdown and repeated weakness under $1325 is likely to encourage a decline towards $1315 and $1300 respectively.

Dollar gains ground, but for how long?

Rapidly diminishing expectations that the Federal Reserve will raise US interest rates in December continue to fuel the bearish sentiment towards the Greenback.

While the Dollar has gained some ground during Monday’s trading session, with the markets relieved that North Korea did not conduct another missile test at the weekend, the upside is likely to face headwinds. With concerns over stubbornly low inflation re-awakening Fed doves and weighing heavily on the prospects of higher US interest rates, Dollar weakness is likely to remain a recurrent theme. 

From a technical standpoint, the Dollar Index is pressured on the daily charts. Sustained weakness below 92.00 should encourage a further depreciation towards 90.00.

Currency spotlight – EURUSD

The EURUSD dipped below $1.20 during early trading on Monday after European Central Bank Executive Board Member Benoit Coeure warned that persistent exchange rate shocks could pressure inflation in the Euro area.

Regardless of the short term losses, the EURUSD remains firmly bullish on the daily charts with further upside expected as expectations mount over the European Central Bank tapering QE. Technical traders will be observing how prices react to the 1.1970 support level this week. A breakout above 1.2040 should open a path back towards 1.2100. If bulls loss control above 1.1970, then bears may be encouraged to drag the currency lower towards 1.1900.

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