David Morrison  |  02/01/2019 07:00
Gold Shines with Risk Off Demand

The US dollar has made a strong start in this holiday-shortened week with risk-off the dominant trading theme. On the first trading day of the New Year, global equity markets have fallen sharply while gold continues to attract buyers. Overnight there was further evidence that the Chinese manufacturing sector is contracting adding to global slowdown worries. On top of this we have the US government shutdown while last month’s meeting of the US Federal Reserve suggested that monetary tightening would continue, despite the sharp sell-off in equities.

The Euro/USD was sharply lower on Tuesday and close to retesting support around 1.1360. This weakness comes on the back of poor Manufacturing PMIs from across the Euro zone. The move looks as if it could continue unless Friday’s jobs data disappoints and Jerome Powell sounds less hawkish than of late. Friday’s US Non-Farm Payrolls will be the key data release this week, although we will also see the ISM Manufacturing PMI on Thursday. The consensus expectation is for a payroll increase of 178,000 while the unemployment rate is forecast to hold at 3.7% for December, unchanged from the previous month. Later in the day Fed Chairman Jerome Powell will participate in a panel discussion – his first major outing since the December rate hike.

Meanwhile, gold has just hit a fresh six-month high as investors shift money out of equities and into alternative investments, including US Government bonds. The next target for gold is the 1300-1310 resistance range. However, a pull-back and consolidation around 1260 or even 1240 can’t be ruled out, particularly if we see another sharp counter-trend rally in equities. The Euro/USD was sharply lower on Tuesday and close to retesting support around 1.1360. This weakness comes on the back of poor Manufacturing PMIs from across the Euro zone. The move looks as if it could continue unless Friday’s jobs data disappoints and Jerome Powell sounds less hawkish than of late.

Have a great week.

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