The US dollar is overvalued. The US national debt is 104% of GDP, and the annual balance of trade deficit is over $500 billion. Despite these figures, there are many who consider the US dollar a safe haven currency, and the dollar is holding up in the FX markets.
A broad buoyant sentiment pushed the precious metal to fresh 13-month highs by Friday morning. Yesterday the bullion’s selloff was successfully limited by the February uptrend below 1,240, and later moderately hawkish remarks by the ECB President Draghi resulted in a surge above 1,270. For now we see the weekly R1 as the first reliable resistance for the remaining 24 hours of this week’s trading, with monthly R1 at 1,295 acting as the second supply level. As daily and weekly technical indicators are mostly bullish, we assume that gradual price increases will stay in place.
The bears performed strongly until the beginning of US session on Wednesday when EUR/USD managed to erode losses and bounce back to 1.10. In the morning on Thursday we see another round of selling pressure, but movements remain quite hesitant. It is all about the ECB meeting today. In December EUR/USD had spiked on disappointment. Bearish outcome of the gathering may send the pair well down to 1.08, in move that is estimated by daily technical indicators. However, the bulls will try to catch the first monthly resistance at 1.1227 in case there is dissatisfaction with the ECB’s policy.
Swiss unemployment fell in February to 3.7% from 3.8% in January. Although there is a seasonal factor to take into consideration, hiring generally only really starts to pick up in the month of March. CPI figures in February also bettered expectations with prices rising 0.2% compared to a drop of -0.4% in January and -0.1% expected. These, are first signs of improvements after a very difficult year in 2015. It will be interesting to see whether the Swiss economy can keep up the momentum over the coming months.
The US economy created more jobs than expected in February, while the unemployment rate remained unchanged, highlighting the ongoing improvement in the labour market. US non-farm payrolls increased by 242,000 last month, compared with economists’ expectations for 195,000 new jobs, according to the Labor Department. Moreover, the previous two months’ revisions were positive, adding a net 30,000 uncounted jobs.
Hyperinflation for goods and services has so far not been evident despite QE while the prices of equities have risen inversely in respect to bond yields. The central bankers follow the latest fad for negative interest rates after almost a decade of ZIRP (Zero Interest Rate Policy). Salaries have generally remained stable in the USA, EU and Japan. So there is no salary rise-cost of production rise-product price rise inflation cycle. Negative interest rates were introduced by the SNB (Swiss National Bank) to discourage foreigners buying Swiss francs in order to avoid appreciation of the currency. That was when the Swiss franc was still considered a safe haven.
Gold posted steep declines on Friday (26 Feb.), falling as upbeat data from the US renewed optimism over the strength of the country’s economy and raised concerns that the Federal Reserve might return on the path of raising interest rates in 2016, driving the Dollar much higher.
Today the Spanish parliament will vote again on the candidacy of the minority centre-left coalition (Psoe, driven by leader Sanchez, and Ciudadanos). However, according to rumors, changes are not expected from the first vote that saw Sanchez in net minority and therefore new elections seem increasingly likely in June.
