US President
Donald Trump’s latest comment on how trade talks with China are “going very
well” has clearly boosted confidence over negotiations between the two sides
concluding on a positive note. However, with Trump also stating that the talks
are “very complex” and the current March deadline is not a “magical date”, a
breakthrough deal is still some distance away. A market-friendly outcome this
week will be for both sides to agree on extending the 1 March deadline, which
should provide more time for finding a middle ground on trade policy.
Global equity
markets are likely to be mostly dictated by US - China trade developments for
the rest of the trading week.
Is the Dollar about to lose its crown?
The broad
economic and monetary policy divergence between the United States and other
major economies has certainly supported the Dollar in recent months.
However, the
Greenback’s outlook is slowly pointing in favour of bears, after a ‘patient’
Fed and a string of disappointing economic data from the United States reduced
buying sentiment towards the currency. With the key fundamental drivers behind
the Greenback’s appreciation slowing diminishing, is King Dollar losing its
grip on the throne?
Investors will
direct their attention toward the FOMC Minutes this evening which should offer
some clarity into how ‘patient’ and ‘flexible’ the Fed wants to be when it
comes to raising US rates. Markets will also be looking for reasons why the
phrase “some further gradual increases in the target range” was removed from
the statement. The Dollar is likely to depreciate against a basket of major
currencies if the Minutes reinforce speculation over the Fed taking a pause on
rate hikes this year. With the combination of political uncertainty in
Washington, soft domestic data, concerns over slowing US economic growth and
expectations over a pause in US monetary tightening threatening the Dollar’s
competitive advantage, further downside is on the cards.
Gold remains an investor’s best friend
It has been an
incredibly bullish trading week for Gold thus far, with the precious metal
hitting a fresh 10-month high this morning thanks to Dollar weakness and fears
over slowing global growth.
Gold bulls
remain in the driver’s seat, with further upside expected as geopolitical risk
factors and speculation over the Fed taking a pause on monetary tightening
boosting attraction for the precious metal. The yellow metal has the potential
to extend gains this evening if the FOMC Minutes are presented with a dovish
touch – ultimately weakening the Dollar even further. In regards to the
technical picture, Gold is heavily bullish on the daily charts as there have
been consistently higher highs and higher lows. The breakout and daily close
above $1340 is seen opening a path towards $1353.60 and $1360 in the medium
term.
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