In Monday’s trading (09/10), the USDIndex was little changed. The dollar on Monday received support from safe-haven demand, after Israel declared war on Hamas, however, it gave up most of its gains after stocks recovered from early losses and moved higher, reducing liquidity demand for the dollar. In addition, dovish comments from Fed Vice Chair Jefferson and Dallas Fed President Logan weighed on the dollar when they said the recent surge in long-term Treasury yields may mean less need for the Fed to raise interest rates again.
US 10-year bond yields surged above 4.8% in October, a new 16-year high, after fresh evidence of a tightening labour market reinforced speculation that the Fed will extend its hawkish stance. Non-farm payrolls rose by 336k in September, the most in eight months and well above expectations of a 170k increase. The results reinforced evidence that the US economy remains resilient amidst a high inflation environment and the Fed’s aggressive tightening cycle, and also reinforced the consensus that neutral interest rates have shifted much higher since the 2008 recession, and consolidated higher bond yields in the long run. Bets that the Fed would refrain from significantly lowering interest rates under normal conditions fuelled a selloff in long-term government bonds around the world, with 10-year Treasury bond yields surging nearly 30bps on the week, while 30-year bond yields surpassed 5% for the first time since August 2007. The bond market has been closed on Monday due to a Columbus Day holiday.
Gold traded higher yesterday, as buyers tried to recover some of the significant losses incurred during the 9 consecutive red candles that pushed gold from the mid 1,900s down to 1,800. The ability of buyers to resume these gains is critical to gold’s near-term outlook.
Although gold has been on the rise due to the flight to safety, the momentum indicators are not fully in favour of the current upside movement. The RSI moved up towards its midpoint, confirming the market’s slightly reduced bearish trend. MACD slightly validated the recent rebound to the sell zone. Price remains below the 20-day exponential moving average.
If the bulls regain control of the market, then an upside move could test the 50% FR level at 1878.80, but still remain limited to the 1884.87 support which is now resistance. On the other hand, bears might be keen to continue the current reaction, hoping for a miracle to close the gap formed. To sum up, gold bulls have found the necessary strength to react after a considerable drop, but for the current rally to continue, they need to get strong support from momentum indicators, as currently the price action is still triggered by geopolitical sentiment.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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