Investors throughout this week continue to evaluate the price movement in the US Dollar looking to determine its next move. The US Dollar Index (DXY) this week has mainly remained within the 102.00 - 102.50 range, and both attempted breakouts failed. The price movement has indicated that investors believe USD is currently appropriately priced.
Gold
As the US Dollar has mainly remained static throughout this week, it has allowed room for Gold and other correlated commodities to rise further. The price of Gold yesterday increased in value within all 4 trading sessions. Gold has renewed its price highs for 2023 and is currently at a 39-week high.
Two main factors are supporting the price of Gold. The US Dollar has significantly declined which has resulted in large market participants requiring an alternative instrument to hedge against the current high level of inflation. Gold's price this week was significantly impacted by the poor earnings reports from global banks. The earnings reports so far have impacted investor confidence which has led to an increase in demand for safe-haven assets, specifically Gold.
In addition to this, the latest Retail Sales figures significantly declined not only in the US but also in most major economies. For example, UK Retail Sales declined to -1.0% which is lower than expected. This specific data released for December 2022 also has concerned investors regarding future company performance and also the size of dividend payments.
The price of Gold has mainly been keeping to the current trend of higher highs and higher lows. The price reached a new high at the end of yesterday’s US session before retracing this morning. However, the retracement is quickly losing momentum and again attempting to form a higher impulse wave. Indicators such as the MACD and Stochastic Oscillator continue to provide bullish indications but traders are also monitoring that the asset does not form a double top. A double top is known to potentially indicate a loss of momentum.
Crude Oil
As mentioned above, the weaker USD has supported the commodity market in more than one way. However, Crude Oil has also been supported by an expected increase in demand coming from China. Traders should note that China is historically the largest importer of Crude Oil.
The price of Crude Oil has been increasing over the past 24 hours after a quick and sudden decline on Wednesday. The price had formed a “price rejection” level at $81.48 during yesterday’s trading session. After the quick pullback at $81.48, the price has again climbed up to the same level. Traders are monitoring if this level will prove to be a resistance level or if the price will break through.
As mentioned above, the price has increased based on higher demand from China. China has lifted most of its COVID-19-related restrictions and also will allow an easier flow of tourism. The move is expected to support industrial companies as well as the global economy. One of the main concerns of 2022 was supply disruptions from China which are now likely to ease. This positively impacts demand from China and from the global economy if the benefits can also be seen elsewhere.
In addition to the above, experts have also advised that China is continuing to purchase from their Russian partners at a discounted price as well as from OPEC members. Crude Oil was also partially supported by economic data from the US which showed a resilient economy. For example, the Philly Fed Manufacturing Index read -8.9, which is higher than the previous month and higher than the expected -10.9. In addition to this, the US Unemployment Claims declined from 205,000 to 190,000 which was significantly lower than in previous months.
On the other hand, investors also need to keep in mind that the price may again start to form a bearish trend. The global energy crisis is returning to normalization according to most global experts and this can also mean the price of Crude Oil returning to its traditional value. In addition to this, the latest Crude Oil Inventories are significantly higher than expected. A higher supply is known to pressure prices and even cause a drop in price.
Summary:
- Gold increases to a 39-week high and continues to be supported by multiple factors.
- The price of the US Dollar sees no major price movement and remains within its current price range.
- A weak USD and poor earnings have resulted in a higher demand for safe-haven assets such as Gold.
- Crude oil increases in value after an expected increase in demand from China.
