GOLD PRICE DROPS SHARPLY DUE TO A STRONG DOLLAR
Gold price dropped to a four-week low of $1180. This happened as the US dollar strengthened following the Fed’s monetary policy statement on Wednesday. In the statement, the committee said that a strong US economy continued to support further rate increases. This led to a belief that another hike will happen in December. Three more hikes will follow in 2019. A strong dollar often leads to a drop in gold mainly because gold is mostly listed in dollars and that most traders view it as a safe haven.
Japanese Yen fell to a YTD low of 113.61 despite the positive reviews from the meeting between Donald Trump and Shinzo Abe. The meeting resolved to restart the free trade agreement between the two countries. The drop in price was partly because of the disappointing industrial production data for the month of August. The data showed that industrial production rose to 0.7%, which was lower than the expected 1.5%. It was however better than July’s contraction of 0.2%. This was offset by the positive retail sales numbers that rose by 2.7%, which was lower than the expected 2.2%. It was also offset by the inflation numbers for Tokyo. The Tokyo CPI rose by 1.3% which was higher than the 1.1% traders were expecting. The unemployment rate fell to 2.4%, which was lower than the expected 2.5%.
The sterling traded lower against the USD in the Asian session. It reached an intraday low of 1.3075. This decline was mostly attributed to the hawkish statement from the Fed. Today, traders will look to the important Q2 economic numbers from the Office of National Statistics (ONS). The numbers are expected to show that the economy expanded by 1.3%, which will be the same as that released in August. The business investment growth is expected to remain at 0.8%. Elsewhere in Europe, traders will receive important employment numbers from Germany, inflation numbers from Spain, and CPI numbers from the European Union.
The EUR/USD continued the decline started shortly after the Fed’s interest rates decision. This decline saw it move past the important support of the diagonal channel. It also moved below the head and shoulder’s neckline of 1.1796. This happened as volume increased. This is an indication that the pair will likely continue moving lower, potentially to the next important support of 1.1570.
The sterling fell against the USD in the Asian session. It is now trading at 1.3080, which is close to an important support. Further declines below this support line will be an indication that the pair will likely continue to move lower. This is confirmed by the short and longer-term Exponential Moving Indicators which have just crossed each other in a bearish manner. In the near term, the pair could try to test the important support of 1.3000.
Gold reached a four-week low of 1181. This price was below the important diagonal support and resistance levels. The XAU/USD pair is trading along the lower band of the Bollinger Bands. This is a show of strength for the downward trend, which is an indication that it will continue. Further declines will likely lead to the important support of 1150.