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05/11/2014: The impact of a stronger dollar continues to be felt across markets


Markets have greeted the culmination of the US mid-term elections with a positive outlook today. US Treasury yields are again higher, global stock markets are positive and the dollar has once more strengthened. However the strength of the dollar is continuing to cause problems for commodity prices which are under significant pressure.

The gold price is under some severe pressure today, trading as much as $30 lower. Having recently broken the key support at $1180 it would appear as though the floodgates have been opened today. The longer term outlook for gold now looks dreadful with the price at the lowest level since April 2010. The price has now been lower on 8 of the past 10 days and the prospects for support look rather weak until the key low at $1085 comes in. The bulls will point to a daily RSI which is down at 20 now which is the lowest since April 2013, but this juts goes to show how weak the outlook is currently.

The other story getting the headlines is the decline in West Texas Intermediate Oil. The WTI price has been falling sharply since losing the key support at $80 a couple of days ago. The initial target is $75 which is an implied measurement from a descending triangle. Quite what the legacy of this price drop becomes will be dependent on why the price has been falling. The latest move has come as Saudi Arabia have reportedly cut its oil prices to the US. However there is also an element of lower global demand that needs to be factored in. The Chinese PMI data has recently been rather muted and this would also have weighed on the price of oil. This suggests there are both supply and demand factors in the decline in the oil price. Today we have the US ISM Non-manufacturing PMI data (at 15:00GMT with 58.0 expected), whilst coming towards the end of the week we have also got the the Non-farm Payrolls data. If this data starts to come in more positively then it could begin to provide a floor for the oil price.

All of the forex majors are significantly lower today as the Dollar Index has broken sharply higher. The Euro is now back below $1.2500 again and is threatening the recent low at $1.2440. Cable has briefly breached its support at $1.5873, whilst Dollar/Yen has continued its meteoric rise.

For now the dollar continues its run. The Dollar Index is now within 1.4% of its crucial June 2010 high, perhaps at that level we will get some consolidation.

DXY   05112014

 


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