After another big move overnight,
gold and
silver were hit by profit-taking as Europe opened for trading as the
US dollar rebounded off the lows amid
mild risk-off tone, with equity indices losing some ground ahead of big
tech earnings. The stronger dollar also weighed on major currency pairs such as the
EUR/USD and
GBP/USD (see below for more on this pair).
There was
no obvious trigger behind the move, except rising
US-China tensions which have been largely ignored until now. Investors have also been ignoring rising virus cases and concerns over the efficacy of the vaccines that are in development. So, this morning’s moves may well have been due to
profit-taking than anything else. Therefore, I think it is
far too early to suggest the trend for risk has turned sour. Consequently, we
may well see further falls for the dollar index and gains for the major currency pairs, as well as
gold and silver.
In fact, the
Dollar Index looks rather heavy and I think a drop below the March low of 94.65 is still on the cards. It is a big level and lots of liquidity i.e. a cluster of sell stop orders is resting below it, which may draw the index towards it:
Source: TradingView.com and ThinkMarkets
If the DXY does go down, the
GBP/USD may well bounce off this key support level around 1.2650-65:
Source: TradingView.com and ThinkMarkets
The Cable has been making
higher highs and higher lows for a few months now, along with other risk-sensitive markets. So far, the
200-day moving average has proven a tough nut to crack, with the rally stalling each time it gets near it or surpasses it slightly. This was again the case yesterday, when the bearish trend line also offered resistance. However, given the progressively shallower retracements from the 200-day average, the pressure is building for an upside breakout soon.
However, a move back below the recent lows around the 1.25 handle would invalidate this potentially bullish scenario, for if that happens price will have created a lower low.