The US dollar has been moving higher this week as it pushed both the euro and gold near multi-month lows. Specifically the euro dipped to its lowest since April below 1.0650 and very near its 12 ½ year low of 1.0461 registered back in March this year. With respect to gold, the precious metal fell to its lowest in nearly 4 months at 1077, after falling to 1074 the previous week; eyeing the almost 6-year low of 1071 dollars an ounce.
There were a few factors that were working in the dollar’s favor and against both the euro and gold. Firstly, US economic data have been coming in relatively robust, which backs the case for a December rate hike. Today’s inflation numbers out of the US for example were in line with expectations and they were one of the last major hurdles for the Fed to consider in weighing a rate hike.
Secondly, the terrorist attacks in Paris had a negative effect on the euro as they likely boosted the odds of ECB action during its December meeting. The attacks were unlikely to have a lasting impact on the Eurozone economy, but they strengthened the ECB’s hand in providing stimulus that would help. The ECB’s Vice President said as much following the attacks.
Thirdly, stock markets staged a powerful rally since the beginning of the week, following an initial negative reaction to the attacks in the first hours of Monday’s trading. The rebound in stocks following a dismal performance the previous week, obviously hurt the demand for safe havens such as gold and added to the selling pressure of funding currencies such as the euro.
To sum up, gold and the euro are near important multi-year lows and it might not take much to push them over the edge and break those lows – particularly since the US dollar has so far refused to correct its upmove. The dollar move is at the same time extending itself even more and there is a risk of a counter-move, particularly since the relative strength index is flashing oversold for both the dollar and gold.
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