Analys från DailyFX
Which Currencies May be Most Affected by Gold Prices?
– Gold prices have tumbled, but direct FX impact limited as correlations weaken
– The US Dollar and Australian Dollar may prove the most sensitive
– See the charts and analysis below for further details
Gold prices have tumbled and yet the FX impact has been limited as correlations weaken. This effect might be temporary, however; here’s what we’re watching.
Correlation between the Dow Jones FXCM Dollar Index and the Price of Gold
Data Source: Bloomberg. Chart Source: R. Prepared by David Rodriguez
The correlation between the price of gold and the Dow Jones FXCM US Dollar Index fell and lingered around a low of -0.7 through May as gold acted as its traditional hedge against US Dollar volatility. The unexpected sharp drop in gold price recently disrupted the steady negative correlation, pushing it near -0.3. Gold prices may nonetheless settle into their familiar relationship with the US Dollar as the US Federal Reserve’s interest rate liftoff looms and the turbulence in the global markets subsides.
Gold has traditionally served as a hedge against US Dollar weakness and high inflation. If the Dollar strengthens and inflation drops on interest rate hikes, the price of gold by extension may trade in the opposite direction and regain its negative link to the US currency.
Correlation between the Australian Dollar and the Price of Gold
Data Source: Bloomberg. Chart Source: R. Prepared by David Rodriguez
The strong positive correlation between the Australian dollar and the price of gold had been slowly diminishing since late May. The recent slide in gold price accelerated the process, driving the correlation to a near-zero level. Yet Australia remains an important exporter of gold as the precious metal accounts for 5 percent of total merchandise trade.
Perhaps in the near-term we may see the price of gold at a low correlation to the Australian Dollar as the US Dollar itself grows less-correlated. Yet it stands to reason we may see the AUD regain its link through the medium term—particularly as gold prices respond to planned interest rate hikes from the US Federal Reserve.
Correlation between the British Pound and the Price of Gold
Data Source: Bloomberg. Chart Source: R. Prepared by David Rodriguez
The correlation between the British Pound and the price of gold continues to fluctuate in a broad range this year, rising to 0.6 but at points going to a neutral 0.0. Much of this is linked to the US Dollar’s weakened correlation to the precious metal, but it is also worth noting that the British Pound is likely to move on likely interest rate moves from the Bank of England. UK inflation is still quite below the central bank’s official target, but BoE governor Mark Carney spoke recently that the MPC is ready to raise the benchmark rate as early as the turn of the year.
The British Pound may further detach from the price of gold as the strength of the Sterling will depend on the relative timing of interest rate liftoff by the BoE and US Federal Reserve.
Forex Correlation Summary
Forex correlations against major currencies, Crude Oil, and the SP 500 index for the past 30 calendar days:
Read a guide on understanding the forex correlations summary chart.
Written by David Rodriguez, Quantitative Strategist and Shuyang Ren for DailyFX.com
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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