Gold rally continues as the dollar comes under pressure
The euro jumped to the highest level since January after the relatively strong German business confidence data. According to the Ifo Institute, the overall business expectations rose from 99.2 in April to 102.9 in May. Similarly, the current assessment and the business climate index rose to 95.7 and 99.2. The three numbers were better than expected and they provide hope that the biggest European economy will return to growth after contracting in the first quarter. According to Destatis, the country’s GDP declined by 1.8% in the first quarter and by 3.4% on a year-on-year basis. This performance was because of the lockdown that led to weak consumer spending. Also, German automakers were affected in the first quarter by the ongoing chip shortage.
The British pound rose even after some worrying data by the Office of National Statistics (ONS). The data showed that the UK public sector borrowing increased from 25.53 billion pounds in March to more than 30.96 billion pounds in April. This growth led to the second-biggest deficit of any April on record. The country has a total debt of 2.71 trillion pounds, up by 280 billion pounds from April last year. The government believes that the increased borrowing was necessary to sustain the economy amid the pandemic. It also expects that the monthly increases in debt will start to fade as some policies like the furlough program start winding down. The sterling also rose as investors remained optimistic that the government will lift the existing restrictions in June.
European stocks jumped to a record high after the German business optimism data. In Germany, the DAX index rose by 0.80% to a record high of more than 15,570 euros. This happened after Vonovia agreed to acquire Deutsche Wohnen in an 18 billion euro deal. In the United Kingdom, the FTSE 100 was little changed after the UK debt numbers. Across the region, the Stoxx 50 index rose by 0.70% to 4,055 euros. Meanwhile, in the United States, the Dow Jones rose by 0.30% to $3,4,445 while the S&P 500 and Nasdaq 100 index rose by 0.30% and 0.50% as inflation fears waned. Similarly, the prices of cryptocurrencies like Ethereum and Cardano also bounced back.
The EUR/USD pair rose to a high of 1.2263 as the US dollar sell-off accelerated. On the four-hour chart, the pair is approaching the upper side of the ascending channel. It has also moved above the 25-day and 15-day exponential moving averages (EMA). Also, the pair is above the Ichimoku cloud while the Relative Strength Index (RSI) has moved to the overbought level of 70. Therefore, after the bullish breakout, the pair may keep rising as bulls target the next key resistance at 1.2260.
The USD/CAD pair declined to an intraday low of 1.2044 as the US dollar sell-off accelerated. On the four-hour chart, the pair has moved below all moving averages. It is also between the lower and middle lines of the Bollinger Bands. Similarly, the signal and histogram of the MACD have moved below the neutral line. Therefore, the pair may keep falling as bears attempt to move below the year-to-date low of 1.2010.
The XAU/USD pair rose for the eighth consecutive day as US dollar remained under pressure. It rose to a high of 1,891, the highest level in almost four months. On the daily chart, the 25-day and 50-day moving averages have made a bullish crossover. The Relative Strength Index (RSI) has also moved to the overbought level of 70 while the MACD has continued rising. The pair will likely keep rising as bulls target the next key resistance at 1,950.