Market Keeping a Lid on the US Dollar
U.S. Dollar Index: We last looked at the U.S. Dollar Index on April 8 and at that time, we noted that prices were running into resistance at 97.87, the level of their 62% retracement of the drop from January 2017 to February 2018. Seven weeks later, we find the dollar index at 97.75, still showing no success in overcoming the same resistance level. The U.S. economy is still doing well relative to its European competitors, but the Fed is finding no urgent reason to raise interest rates. Argentina's peso is down 16% so far in 2019, as the government struggles to stay solvent, and Brazil's real is down 4%. If the U.S. dollar index does not break above resistance soon, the weekly stochastic is close to turning lower, a sign of prices losing upward momentum.
August gold: While the U.S. dollar appears to have stalled near 97.87, August gold is modestly lower in 2019 but appears to be finding support from its one-year average at $1,271.00. On Friday, August gold ended at $1,289.20, up $7.80 from the previous week. As mentioned above, the Fed is in no hurry to raise interest rates. The U.S. economy continues to show moderate growth with low inflation, a scenario that would normally be bearish for gold prices. The U.S. tariff war with China is one concern in 2019 that may help gold prices hold above support. August gold prices are content to trade sideways for now. A weekly close below $1,271.00, if it happened, would turn the price outlook bearish.
Shanghai Composite Index: This Chinese stock market index continues to reflect the ups and downs of trade negotiations with the U.S. and has turned downward since mid-April, reflecting the breakdown of trade talks. On Friday, Shanghai's Composite index closed at 2,852.99, down 29.31 from the previous week. Even after the recent drop, prices are still up roughly 13% on the year, as China's economy appears to be making progress in the face of U.S. tariffs and African swine fever. The index is currently finding support from the one-year average at 2,814 and looks surprisingly stable in the midst of the trade war.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.
Todd Hultman can be reached at Todd.Hultman@dtn.com
Follow him on Twitter @ToddHultman
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