While there was a lot of hustle-bustle in the stock market, the FX market was haunting quiet. On Wednesday, the S&P 500 closed nearly 85 handles above its low for the day, establishing a daily bullish outside engulfing bar in the process. Meanwhile, the DXY Index barely registered a move at all, posting an inside day relative to Tuesday’s high-low range.
For the US Dollar, there may be a genuine case that the driver of equity market volatility – tension over trade tariffs with China – has proven to be an offsetting factor to the greenback’s current stature as a safe haven currency.
Many factors have proven to be a road to nowhere for the US Dollar: while the imposition of tariffs and a trade war would be bad for the US Dollar, equity market’s constant weakness has raised the need of safety of world’s reserve currency. And vice-versa: when trade tensions ease, which is good for the US Dollar, they are allowing equity markets to rebound, which is negative for the buck.
While we wait for FX markets – and similarly, bond markets – to partake in the large swings seen by stocks, a different safe haven has proven quite active amidst the headlines: Gold.
Gold remains unified, symmetrical triangle in January start, then many price movements are observed; mirroring moves as the S&P 500 roared back on Wednesday, Gold slid sharply from its daily highs back to its opening price level – more than a 1% drop intraday.
Fundamentally, trade tensions have fanged higher across the globe thanks to the United States, be it with China, South Korea, Canada, and Mexico re NAFTA, or the European Union. Likewise, concerns about the trajectory of the deficit and the debt may have receded into the background thanks to trade war fears, but they won’t be going away anytime soon given the fiscal stance of the Trump administration.
Technically, Gold’s symmetrical consolidation has occurred after breaking the sustained descending trend line from 2011, 2012, and 2016 swing highs. It’s fairly textbook to see a price consolidation after a bottom has been established, which developed in 2017.
In recent weeks, Gold established a series of higher lows on March 1, 20, and 28. With daily statistics and MACD trending higher above their respective median and signal lines, it appears the symmetrical triangle is favoring an upside break. In the near-term, while the equity market rebound on Wednesday may have delayed Gold’s advance, the backdrop for bullion remains favorably.