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Strong dollar keeps the pressure on asset prices

Commentaries & Views

Gold topped out at $1,842 spot yesterday on the 75bp rate hike announcement, the exact spot we recommended traders take profit. Gold has since come back down to touch $1,818 this morning before turning back up; $1,843 - 45 resistance remains intact.

Persistent dollar strength is taking its toll. Below daily chart shows the USD finding resistance at the top of its trendline, but it seems that for any upward momentum to gather in metals, US indices, crypto, or US treasuries, the dollar will have to show signs of breaking down from this channel at the least.

A few weeks ago, we suggested that should the S&P fail to close and hold in a consolidation zone we had highlighted; lower lows were the probability. That has played out. Simultaneously, we suggested that the most obvious spot for the S&P to find support is the 200-week moving average. An update of that chart is shown below.

We can see that a 50% Fib retracement from the March 2020 bottom also coincides with the 200-week moving average on the S&P, with Relative strength just about ready to fall off into oversold territory.

There is no doubt that traders looking to pick a spot for a major counter-trend rally in stocks are likely observing the confluence of support highlighted above in the S&P. Consequently, another smaller counter-rally in stocks may manifest first, maybe as early as going into tomorrow’s close. Still, unless the DXY confirms the threat of a breakdown, traders should remain skeptical and nimble.

Thanks and have a nice day,

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