The Greenback roared back to life on Tuesday, after U.S retail sales advanced in July by the most so far this year.
Sales at U.S retailers smashed market expectations by jumping 0.6% last month; this boosted confidence in the health of the US economy. With consumer spending accounting for around 70% of economic activity in the US, short term bulls are likely to exploit this positivity to drive the Dollar higher ahead of Wednesday’s FOMC meeting minutes.
Much attention will be directed towards the pending minutes, which will be closely scrutinized for clues on when the Federal Reserve plans to raise US interest rates again. With stubbornly low inflation in the US still weighing on the prospects of higher US interest rates, the upside on the Dollar Index is likely to face some headwinds down the road. If Fed Doves make an appearance in July’s FOMC meeting minutes, then the Dollar is at risk of surrendering its recent gains.
From a technical standpoint, the Dollar Index has broken above the 93.90 lower high, with prices trading around 94.00 as time of writing. A daily close above 93.90, should encourage a further appreciation towards 94.30.
Sterling tumbles as UK inflation Stalls
Sellers were given permission to ruthlessly attack Sterling during Tuesday’s trading session, after British consumer price inflation unexpectedly held steady at 2.6% in July.
With high inflation being one of the key culprits fuelling interest rate hike speculations, the soft U.K inflation report is likely to dent expectations of the Bank of England taking action anytime soon. The fact that Sterling crashed over 100 pips following the release, continues to highlight how the currency has become increasingly sensitive to monetary policy speculations. With Brexit uncertainty adding to the horrible bearish mix, the Pound is poised for further punishment down the road.
From a technical standpoint, the GBPUSD is turning increasingly bearish on the daily charts, with 1.3000 proving to be a tough psychological resistance. The breakdown below 1.2950 should encourage a further depreciation towards 1.2850 and 1.2775 respectively.
Commodity Spotlight – Gold
Gold has been quite active this month, as the combination of Dollar weakness, fluctuating rate hike expectations and risk aversion, created explosive levels of volatility. The yellow metal depreciated during Tuesday’s trading session, with prices breaking below $1270 after US retail sales exceeded market expectations. With the US/North Korea tensions easing and the Greenback venturing higher, short term bears seem to have stolen the spotlight. While further downside may be on the cards if prices secure a close below $1270, the metal may find support from risk aversion and uncertainty in the medium term.
It should be kept in mind that geopolitical tensions are likely to keep Gold elevated while the fading prospects of higher US interest rates, should instil bulls with enough confidence to attack $1300. From a technical standpoint, there have been consistently higher highs and higher lows, while prices are trading above the daily 20 SMA. A breakout and decisive daily close above $1283 should open a path towards $1290 and $1300 respectively. In an alternative scenario, a breakdown below the $1251 higher low is likely to encourage bears to target $1240.