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Gold Advances Among Softer U.S. Yields

By London Capital Group (Ipek Ozkardeskaya)Market OverviewApr 14, 2017 02:58AM ET
Gold Advances Among Softer U.S. Yields
By London Capital Group (Ipek Ozkardeskaya)   |  Apr 14, 2017 02:58AM ET
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UK, Europe closed due to Bank Holiday

FTSE 100 closed at 7327.59

DAX closed at 12109.00

CAC closed at 5071.10

Euro Stoxx 50 closed at 3448.26

European markets closed the week on a negative note.

The FTSE 100 retreated 0.29% on Thursday, as energy stocks (-0.92%) lead losses on softer oil prices. The WTI retreated to $53 per barrel, after the EIA stated that the oil inventories rose in the first quarter, despite OPEC’s efforts to reduce the global supply glut. The positive momentum in oil markets eased. The price of a barrel could pull back to $52.40 and $51.40 (minor 23.6% and major 38.2% retracement on March 21st to April 11th rise). Solid offers are eyed pre-$55.00.

Across the channel, the stronger euro weighed on investor sentiment, which was already weakened due to French political uncertainties and geopolitical tensions in North Korea and Syria. The DAX closed the week softer for the second consecutive week (-1.11%), the CAC wrote off 1.10% over the week, breaking the series of six consecutive weeks of gains.

The EUR/USD remained sold into 1.0700 (major 38.2% retracement on March-April slide) and consolidated below the 100-day moving average (1.0624) in Asia.

European markets will be closed today and on Monday.

Risk appetite in Asia remained limited on Friday. Nikkei (-0.73%) and TOPIX (-0.81%) extended losses on stronger yen. The USD/JPY hit 108.72 yesterday and remained capped below 109.23 in Tokyo. More offers are eyed pre-200-day moving average (109.66). Light option barriers stand 109.35 and 110.00 for today’s expiry.

Gold advanced to $1290.10. Softer US yields, meaning lower opportunity cost for holding gold, should encourage a further rise in gold allocations. The next natural target for gold bulls stands at $1300.

Earnings season kicked off well in the US, as JPMorgan (NYSE:JPM) and Citigroup Inc (NYSE:C) posted solid trading gains in the first quarter. The reflation environment and improved yields benefited to the US banks. Moving forward, softening US yields could dent the enthusiasm in bank shares. Nevertheless, the Federal Reserve (Fed) is expected to proceed with two additional interest rate hikes in 2017 and start shrinking the size of its balance sheet by the end of the year. Although Donald Trump voiced concerns about the strengthening US dollar and has the option to slow down the USD appreciation by an expansive fiscal policy, the US interest rates are set to increase as the US monetary conditions will be tightened either way.

The US 10-year yields stabilized at 2.22% - 2.23%, the lowest levels since November. Still, they trade with more than 20% premium compared to the pre-Trump levels. As a quick reminder, the US 10-year yields stood below 1.80% before Donald Trump was elected President of the United States.

Although the US dollar’s mid-term term direction is contingent on the combination of fiscal and monetary policies, the short-term trend is driven by the information available to investors today. Hence, in the dirt of further details regarding the US fiscal policy, we expect the USD's sell-off to cool down. The US Congress will be closed for the next two weeks. As such, the economic data should be in focus of short-term traders.

The US will release the March inflation figures before the weekly closing bell. The inflation excluding food and energy could have advanced to 2.3% year-on-year from 2.2% printed a month earlier. Solid read should revive the Fed hawks and help the US dollar paring losses across the board.

Finally, the Turkish lira pares gains as investors take profit and flatten their position before Sunday’s constitutional referendum. Turkey may be giving the most important decision of its modern history. On Sunday April 16th, Turkish citizens will say ‘yes’ or ‘no’ to the constitutional change aiming to consolidate President Erdogan’s power at the heart of the government. We are prepared for two-sided volatility in TRY and TRY-denominated assets at Monday's open

Quick glance at technical on LCG Trader:

USD/ZAR: upside prevails with support at 13.0830. Below 13.0830, downside potential to 12.6300 & 12.3600.

EUR/SGD: Downside prevails with resistance at 1.487. Above 1.487, upside potential to 1.489 & 1.490.

GBP/AUD: downside prevails with resistance at 1.6580. Above 1.6580, upside potential to 1.6625 & 1.6651

Gold Advances Among Softer U.S. Yields

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Gold Advances Among Softer U.S. Yields

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Rajdeep Dani
Rajdeep Dani Apr 14, 2017 6:06AM ET
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