Dollar bulls received ample encouragement on Thursday following Janet Yellen’s hawkish remarks at Congress which fortified expectations of a probable US interest rate increase in December. Yellen strongly suggested that an interest rate rise was on the cards before year-end amid the improving economic health of the US and such offered investors the clarity long sought. With inflation rising steadily towards the golden 2% target and domestic data repeatedly displaying signs of economic stability, there is logic in expecting the Fed to take action. Although there was a cloud of uncertainty in the aftermath of the shocking US election, the Fed stands firm on raising US rates relatively soon because delaying could present its own risks. With speculations mounting over Donald Trump cutting taxes and boosting infrastructure spending, the Fed may be forced to repeatedly raise US rates in 2017 in an effort to control inflation.
The Dollar Index is extremely bullish on the daily timeframe with prices surging to fresh 14 year high at 101.40 on Friday as expectations heightened over a US rate increase. Prices are trading above the daily 20 SMA while the MACD has also crossed to the upside. Previous resistance at 100.50 could transform into a new dynamic support which encourages a further incline towards 102.00.
Mario Draghi in the spotlight
The growing fears of political instability in Europe have left the Euro exposed to heavy losses while the lingering impacts of Trump’s market shaking presidential victory continues to heighten expectations over the European Central Bank extending its QE program at December’s policy meeting. An extension to the QE program should be another meal ticket for the bears with the growing tension revolving around the impacts of Italy’s referendum ensuring the Euro remains depressed. Investors may direct their attention to Mario Draghi who is scheduled to speak in Frankfurt on the current outlook for the Eurozone. Any additional clues on possible changes to monetary policy could spark further selloffs on the Euro.
The parity dream on the EURUSD could become a reality in the future if Dollars resurgence amid renewed US rate hike expectations encourages sellers to install repeated rounds of selling. From a technical standpoint, prices are bearish and the combination of Euro weakness and Dollar strength could spark a sharp decline to 1.050. A decisive break down below 1.050 may pave a clear path towards 1.000.
Sterling destined for further declines
Sterling concluded Thursday surrendering gains despite the impressive retail sales report for October that questions if the ongoing Brexit woes impacted British consumption. It is becoming very clear that Sterling has been possessed by the persistent Brexit fears with uncertainty effectively haunting investor’s attraction towards the currency. Buying sentiment towards the Pound remains frighteningly low with a resurgent Dollar amid the intensifying US rate hike expectations encouraging steeper declines on the GBPUSD. From a technical standpoint, the GBPUSD is pressured on the daily timeframe and a breakdown below 1.2400 could spark a further selloff towards 1.2200.
Commodity spotlight – Gold
Gold depreciated to its lowest level in more than five months, dropping to $1205.7 an ounce on Thursday following Janet Yellen’s hawkish rhetoric at Congress which boosted expectations of a US rate increase in December. This metal remains highly sensitive to US rate hike expectations with the near 100% probability of the Fed taking action before year end obstructing any upside gains. Further declines may be expected in the coming weeks as a strengthening Dollar amid the improving sentiment towards the US economy entices sellers to drag prices lower. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A weekly close below $1210 could trigger a further decline towards $1190 and potentially lower.