Weekly review: USD marching alongside with Gold & Stocks

Dollar

The dollar has been on an impressive streak, gaining almost daily, particularly against emerging market currencies. This is the currency market’s reaction to Trump’s higher chances of winning the presidential race, fuelled by his promises of increased trade tariffs. Even the anticipation of these measures is driving up the US currency.

The Dollar Index has rallied almost 3.7% from the local lows of three weeks ago. While impressive, this is only a recovery from 13-month lows to the July heights. Technically, the dollar index has climbed to its 200-day moving average.

Perhaps it is beginning to test the strength of the downtrend set in motion by the weakness of US monetary policy. However, forex traders should bear in mind that the strength of the US currency is largely due to a sharp softening in the tone of monetary authorities in other developed countries. Therefore, there are highs in stock indices and gold.

Indices

The S&P500 index hit new all-time highs at the beginning and end of the week before a small correction on Tuesday. This is the most dangerous pattern for bears as it quickly recharges the bulls without accumulating overbought conditions. The stock market is rising again on the back of record earnings from companies listed on the stock exchange. They are easily beating analysts’ forecasts, which were very pessimistic before the reporting season started.

Gold

Gold returned to all-time highs at the end of the week, gaining 2% in the last five days. The spot price broke above $2,700 per troy ounce for the first time. This is an extension of the bullish momentum from October 10th after weak weekly US employment data.

Technically, this is a classic return to growth after a small shake-out of positions in the early days of the month. Further movement in the Fibonacci pattern suggests that the $2,820 area is the next target to the upside.

In general, the markets are now experiencing a very unusual combination of dollar and gold rallies. It is more common for them to move in opposite directions and for them to move together only during periods of heightened demand for defensive assets, for example, because of geopolitics.

Oil

Oil has lost around 5% since Monday. The violent sell-off on Monday and Tuesday was replaced by a stabilisation in the second half of the week just below the $75 per barrel mark for Brent.

The price of oil had risen rapidly in early October. However, all bullish attempts bumped into resistance in the form of the 200-day moving average just above $81.20 a barrel, and in the outgoing week, the price rolled back below the 50-day moving average at $75.7.

The weekly picture is even bleaker, with the price below its 50- and 200-week moving averages. This is a bearish sign, reinforced by a death cross—a drop in the 50-week average below the 200-week average.

By the FxPro Analyst Team