Is a Dollar Rebound Due?

MARKETS

Gold and silver finished last week on a high, with gold hitting $1900 per oz and a record closing high, while silver hit a 7-year high. Other precious metals including platinum and palladium were on the rise but have yet to scale new highs for 2020. 

The dollar index fell every day last week, extending a downtrend that began at the beginning of this month to reach its lowest since September. Most other currencies benefited from this dollar weakness – including the yen which saw USD/JPY drop below 106, a key level of support since March and USD/CHF is at multi-year support near 0.92 (see chart).

Chinese and Hong Kong shares finished Friday lower, bringing about a weekly decline amid heightened tensions between China and the US. Wall Street fell too amid the same tension with tech stocks pulling down the Nasdaq for its first consecutive weekly decline since May. Germany’s DAX index reached its highest since the beginning of the pandemic in late February but gave up the gains and ended the week lower. 
 

GURU WISDOM

"Investing in yourself is the best thing you can do, and as a part of investing in yourself; you should learn more about money management."  – Warren Buffett
 

Gold Record

Gold has already topped one record after having closed at its highest ever on Friday. The next one to fall is a record intra-day high, which currently stands at $1920.30 per oz. Mounting tensions between the US and China, whether the US can agree a new stimulus bill, the reaction to corporate earnings and the Federal Reserve rate decision are all possible triggers for it to happen this week. 
 

Dollar rebound?

The US dollar is running into some critical areas of support. We have listed 0.92 on USD/CHF, 106 in USD/JPY but there is also 1.17 in EUR/USD, 1.28 in GBPUSD and 1.335 in USD/CAD. The record high in gold should also be included. 

The dollar weakness can partly be explained by Joe Biden leading the polls and the higher coronavirus cases in the United States but more specifically it is the expectation that the Federal Reserve is making it less appealing to hold dollars by promising to hold down US interest rates.
 

Republican stimulus

The Republicans- the party of US President Donald Trump will unveil their ideas for the next US stimulus bill on Monday. The Democratic congress had already passed a $3 trillion dollar bill – so now a mixture of the two will likely be the end result. The two sides seem to agree on the concepts- including sending more stimulus checks directly to Americans, the disagreements are over size. Any agreement should, all else being equal be good for risk appetite in markets.