Currency Highlights | July
15.07.2018
GOLD – under huge pressure

EUR/USD

The EURUSD pair which was on a steep decline across April 2018, saw range bound movement in June 2018, influenced by global trade war and Central bank decisions. As Trade wars hit new highs, the EURUSD pair hit new 360 day low’s testing 1.15 handle, before seeing some recovery action.

Euro moved above 1.170 handle over influence gained from Italy PM Conte commenting that his country has no plans to leave the Euro and mentioned his plans on new government’s tax cuts and higher welfare spending plan lifted Italian bond yields. The pair saw further uptrend movement testing 1.18 handle over news on QE program closing in Bloomberg.

Forecast

Euro also gained some bullish support on last trading session of the month over updates from EU summit in which European leaders reached a deal on the thorny issue of migration after all night talks. The pair closed for the month in Euro’s favor at 1.168 handle with majority of month gaining momentum from news on geo-political events and trade war related proceedings, rather than a macro data supported momentum. Moving forward immediate focus remains on US non-farm payroll data with no major releases in Euro zone and EURO is likely to decline further as trading session moves into month of July. Recent strength in Euro’s rally lacks fundamental support and USD remains strong on broader market as prospect of multiple rate hikes this year gives it an edge against common currency, which as of now doesn’t have any rate hikes before summer of 2019 and current market provides lot of opportunity for traders with risk appetite supporting growth of US Greenback in long term.

GBP

The British pound has posted considerable losses recently. In North American trade, the pair is trading at 1.3150. The pair is at its lowest level since July 3. It’s a quiet end to the week, with no British data releases. In the U.S, the key event is UoM Consumer Sentiment, which is expected to dip to 98.1 points.

With the Brexit talks in disarray, both sides are making contingency plans for a ‘hard Brexit’, in the event that the parties fail to reach an agreement. On Thursday, the British government released a white paper, which is a blueprint for trade arrangements with the EU when Britain leaves the club in March 2019. The proposal suggests that the UK and the EU will enter into an “associate agreement”, which maintains current agreements with regards to goods but not services. This would hurt the London financial sector, which is already facing the loss of hundreds of financial jobs from London to the continent. Hardliner Brexiters oppose the white paper, which they argue does not give Britain full control over trade policy. EU policymakers are reviewing the white paper and if it is rejected, investors could get panicky and send the pound lower.

GOLD – under huge pressure

The XAUUSD lost ground against US Greenback hitting new 2018 lows as Dollar gained strength in the broad market despite trade war woes and investors choose to abandon gold as a safe haven, opting for safe-haven currencies over the prospect of better interest rates with cheaper investments.

A higher value of US Greenback makes it harder for investors to choose dollar-denominated precious metals as no interest or gains are made from holding Gold over long-term which results in Gold being viewed of costly investment option with zero gains thereby losing its luster.

US Dollar received positive influence as the conflict in Italian political climate came to an end and upbeat US macroeconomic data. However, as news related to President Trump’s decision on imposing tariff over Steel and Aluminum import from Europe, Canada & Mexico hit market trade war woes caused demand for Gold to spike resulting in the pair moving above $1300 handle. The weekend saw G7 summit which was to be held in Canada and anticipation over Trump’s participation as President Trump’s “America First” attitude was expected to create problems among allies during G7 summit which caused XAUUSD pair to remain above $1300 as the trading session closed for the first week.

Forecast

Despite mixed macro data in the USA, XAUUSD pair continued to decline as investors either choose to invest in currency safe havens or move to US Greenback which resulted in firm US dollar and lack of appetite for precious metals resulting in increased selling activity around Gold. The overall decline for June 2018 is at 3.6% making this month’s price action the worst bearish movement since November 2016.

US Greenback has hawkish outlook in long-term and near future market provides highly volatile investment opportunities for investors with risk appetite resulting in dovish predictions for XAUUSD.  The pair is expected to continue its decline until it hits strong support at $1245/40 price range during July 2018.