- Gold is consolidating following a heady fall on the back of US strength.
- The greenback is drifting and lacks momentum, so eyes scan the forex board for clues.
- EUR/USD is meeting a critical level of support which could lead to a meanwhile bullish correction.
Update: Gold (XAU/USD) benefits from the COVID-19 fears to post the biggest daily gains in over a week, up 0.50% on a day around $1,799 during early Friday.
Given the quick spread of the virus variant and immunity against the vaccines, the global traders register broad fears from the covid version at the time when Eurozone is already struggling with the coronavirus wave four. Highlighting the same, the World Health Organization (WHO) and the UK Health Security Agency (UKHSA) call for special meetings to discuss the virus-led challenges on hand.
It’s worth noting that the fears of the Fed’s monetary policy tightening at the wrong time also weigh on the risk appetite and underpin the safe-haven demands of gold and the US dollar.
That said, the US 10-year Treasury yields drop six basis points (bps) to 1.583%, extending Wednesday’s pullback from the monthly peak. Additionally portraying the risk aversion are the downbeat prints of the S&P 500 Futures, -0.80% intraday, as well as the Asia-Pacific stocks.
Moving on, virus updates become the key catalysts to watch as US traders will have a smaller session after a Thanksgiving Day holiday and may fail to fully react to the risk-off mood.
Read: Coronavirus update: WHO calls special meeting to discuss variant
End of update.
Gold was little changed, with markets in the US closed for Thanksgiving but remains heavy following the renomination of Jerome Powell as a hawkish move. At the time of writing, the yellow metal is trading up 0.20% vs the greenback which appears to be consolidating.
The downtrend is well established due to the US dollar's strength whereby the greenback reached a fresh cycle high this week. The Federal Reserve is priced for a faster pace of tapering whereas the European Central Bank remains dovish, supporting the greenback due to the divergence. ECB minutes on Thursday showed inflation is still expected to fall back below 2% in the medium term. December will be an important month in this regard due to the US Consumer Price Index and the central bank meetings.
The Fed minutes yesterday could be more impactful when full markets return next week, but they were leaning towards a faster pace of tapering and a rate hike coming sooner. Next Saturday, the Fed blackout period will start, so if there are any speakers next week, what they say will be crucial for the greenback before Nonfarm Payrolls on Friday and US CPI later in the month as the other key events.
Market pricing the Fed too hawkish?
Meanwhile, analysts at TD Securities said that'' gold's broadly range-bound trading range has subjected trend followers to numerous whipsaws, oftentimes catalyzing buying flows near the range's highs, and selling flows near the range's lows.''
''In this sense, we still don't see a catalyst for the yellow metal to breakout of the trading range, given TD Securities' forecast of slowing growth and inflation next year which suggests that market pricing for Fed hikes may ultimately prove too hawkish.''
''Interestingly, the recently added Shanghai gold length has remained resilient to the technical failure, but Shanghai silver traders have continued to add to their shorts, reflecting our view of a more vulnerable fundamental outlook for the white metal despite the resiliency thus far observed in price action,'' the analysts added.
Gold technical analysis
The bears are in charge, but there appears to be consolidation taking form and there could be a test of the upside between now and the next critical events surrounding the Fed. Additionally, EUR/USD, (euro is the largest component of the DXY index) has fallen towards a retest the monthly counter-trendline. If this holds, then the dollar could be in for a significant correction which would be expected to support gold prices. Still, there is room to go until the trendline is met. However, the horizontal support could lead to a meanwhile correction in EUR/USD.
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