EURO FALLS AFTER WEAK GERMAN FACTORY ORDERS
The price of gold moved slightly higher today after analysts at ICBC predicted that its price would reach $1,300 by December this year. They believe the price will average $1260 an ounce in the third quarter, and more in the final quarter. The price will move up as the Fed provides guidance for the coming year. They expect the Fed to guide on few interest rates hikes, which will drag the dollar down. They also expect the demand for physical gold to rise and supply to be subdued. In South Africa, big miners have recently announced more than 16,000 job cuts as the cost of mines become unprofitable. This is likely to lead to depressed supplies, which will provide support to the price of gold.
The GBP/USD pair dropped sharply today after International Trade Secretary, Liam Fox issued a warning of a no Brexit deal. In recent weeks, the Theresa May government’s proposals on Brexit have been voted by parliament. On the other hand, the European Union has put strict red lines that Liam Fox believes will be impossible for the UK to agree. May’s government has continued to put pressure on the EU to loosen the red lines, especially those on Northern Ireland. Fox sees the possibility of a No Brexit deal at 60%. This follows last week’s warning of a No Brexit deal from Jeremy Hunt, the Foreign Secretary.
The euro dropped against the dollar after disappointing data from Germany. Data from the German Federal Statistical Office, Destatis, showed that factory orders in June fell by 4% in June, driven primarily by the orders from Non-EU countries. This was the biggest decline since January 2017 and reflects the ongoing trade differences between Germany and the United States. Orders from Non-EU countries fell by more than 5.9%. This data covered a period before the meeting between Donald Trump and Jean Claude Juncker of the EU, who agreed to engage in talks.
Chinese markets today declined as the Trump administration continued with the pressure campaign to end its unfair trade practices. On Friday, Trump’s economic advisor, Larry Kudlow said that the President was unlikely to back down until his goals of reduced tariffs and non-tariff barriers. On Sunday, the President declared victory, arguing that the Chinese economy was hurting more. He cited the deteriorating Chinese currency and the falling stock market. On Friday, the PBOC amended the forex reserve requirement to 20% from zero with the aim of reducing speculations that the yuan will weaken.
US dollar strength continued, with the dollar index rising by 30 basis points. This rise started after the jobs report was announced on Friday. The jobs number was lower than what traders were expecting but it showed the resilience of the US economy which has created an average of 200K jobs every month this year. However, there are concerns about wage growth, which has stagnated once inflation is factored in.
The EUR/USD pair dropped to the lowest level since early July. It is now trading at 1.1535, which is below the 100 and 50-day moving averages. The RSI has fallen to below 30 and the Average Directional Index (ADX) has climbed to above 40. This is an indication that the pair could continue moving lower, though traders should pay close attention to the RSI level at 16, which is the recent lowest level.
The GBP/USD pair dropped below the important support of 1.3080 last week after the Bank of England (BOE) hiked interest rates but Carney lowered the estimates for another hike this year. Since then, the pair has been making lower lows and today, it reached an intraday low of 1.2935, the lowest level since September last year. This price is below the 25, 50, and 100-day SMA and is below the important support of 1.2955. The downward trend might continue as traders continue to watch the Brexit debate unfold.
The XAU/USD pair established a top at the $1365 level in April this year. Since then, the price of gold has continued to fall, reaching a low of $1204, last week. The current’s bullion price is the lowest since July last year. On the daily chart below, the price is below the 200, 100, and 50-day EMA. In the past few weeks, the price has remained at the oversold level of 30. The same is true with the Commodity Channel Index (CCI), which is currently at negative 139. There is a likelihood that the XAU/USD pair will reverse the trend at these levels. However, a drop below the $1200 level could signal potential downsides.