Article by: ETO Markets
This week, the foreign exchange market was affected by the strength of the US dollar, the Fed's policy expectations and geopolitical tensions. The US dollar continued to strengthen, driven by the rise in the US 10-year Treasury yield to 4.41% and optimistic economic data expectations. Initial jobless claims are expected to rise slightly to 220K, and existing home sales will increase to 3.93 million, showing the resilience of the US economy. At the same time, Trump's potential high tariffs and tax cuts may drive inflation, exacerbating market expectations that the Fed will slow down the pace of interest rate cuts, further consolidating the appeal of the US dollar.
Geopolitical risks are another key factor. The Biden administration's approval of Ukraine's use of long-range missiles to attack targets in Russia, coupled with North Korea's dispatch of troops to Russia to support its war efforts, has caused market concerns about escalating conflicts and safe-haven funds to flow into the US dollar and gold. In addition, the euro is under pressure due to the lack of economic recovery, the yen is constrained by Japan's loose monetary policy, and the Australian dollar and New Zealand dollar are weak due to weak demand in China and global uncertainty. Although the US dollar will continue to dominate the market in the short term, future economic data and geopolitical developments will have an important impact on its trend.
Gold prices rose 1.50% on Friday to close at a two-week high of $2,710, helped by a drop in the 10-year U.S. Treasury yield to 4.40% and rising geopolitical risks. The potential for further expansion of the Russia-Ukraine conflict, coupled with tensions in the Middle East, has boosted demand for gold as a safe-haven asset. In addition, while U.S. economic activity has been mixed, improvements in the services sector and the composite PMI have eased some concerns about an economic slowdown. At the same time, Federal Reserve officials have become more concerned about stagnant inflation, and while most officials still prefer accommodative policies, the Fed may slow down the pace of rate cuts if inflation remains above the 2% target.
Gold prices continued to strengthen after breaking through the 50-day simple moving average (SMA) of $… this week, and are now targeting the $… resistance level. If it breaks through this level, gold may further test the historical high of $… and even the psychological level of $…. In the optimistic scenario, Goldman Sachs believes that $… is the next major resistance level.
On the downside, if gold prices fall below the $… support, it may consolidate in the $…-$… range. If it falls below $… (November 14 low), it may further test the psychological support level of $…. The relative strength index (RSI) shows a bullish signal, indicating that buyers are dominating the current market.
Crude oil prices (WTI) rose nearly 5% this week to close above $70, boosted by escalating geopolitical tensions and strong U.S. economic data. The conflict between Russia and Ukraine has once again become the focus of the market, and reports that Russia has listed military bases in Poland (a NATO member) as a potential target for retaliation have caused market concerns. In addition, the upcoming inauguration of U.S. President-elect Trump has further promoted market expectations of geopolitical uncertainty, which has supported crude oil prices.
At the same time, the relatively strong performance of the U.S. economy has provided support for the US dollar. Although the Eurozone PMI data performed weakly, the U.S. PMI data exceeded expectations and showed an improvement in economic activity, further pushing the U.S. dollar index (DXY) to a two-year high. The strength of the U.S. dollar has put some pressure on crude oil prices denominated in U.S. dollars, but geopolitical risks and OPEC+ supply policy expectations have kept crude oil prices up.
From a technical perspective, crude oil prices have successfully broken through and stabilized above the 55-day simple moving average (SMA) of $…, indicating that bullish momentum has strengthened in the short term, with further targets pointing to the 100-day SMA of $… resistance. If this level is broken, the bulls may try to test the 200-day SMA of $…. However, if the price falls back below the key support of $…, it may trigger a larger decline, with the target of the 2024 year low of $… and the 2023 low of $….
