A sense of caution gripped financial markets on Thursday as fresh concerns over Chinese property developer Evergrande drained risk sentiment. In the latest twist and turn in the Evergrande saga, the planned sale of its property services arm collapsed, increasing the risk of default.
Global shares were mostly lower amid the risk-off mood with mixed corporate earnings and fears over rising inflation disorienting equity bulls. European stocks were painted red while Wall Street opened lower as investors adopted a guarded approach towards riskier assets. As the Evergrande saga rolls on and concerns intensify over a possible default by the indebted property developer, caution could remain the name of the game.
In other news, king dollar fought back against G10 currencies while gold struggled for direction. Interestingly, oil prices tumbled from multi-year highs with Brent shedding roughly 2.5% for the day.
Dollar Index balances above 93.50
Despite the dollar appreciating today, it has still had a poor week against G10 currencies. Yesterday in our mid-week technical outlook we identified how the dollar was pressured by the improving market mood. Given how risk aversion is back in play, this could limit the dollar’s downside losses as the week slowly comes to an end. Earlier in the afternoon, the weekly jobless claims report was published with jobless claims hitting another pandemic-era low last week. Such reports are likely to strengthen the argument over the Federal Reserve tapering, which could support the dollar down the road.
Looking at the technical picture, nothing much has changed with our outlook. The DXY could be experiencing a pullback before the bulls snatch back control of the driving seat. A technical break below 93.50 could encourage a decline towards 93.27 and 93.00, respectively. Alternatively, a move back above 93.72 could inspire a move towards 94.00 and 94.56.
Taking a look at the equally weighted Dollar Index, the path of least resistance points south with 1.075 and 1.070 acting as key levels of interest. Weakness below these levels may open the doors towards 1.060.
Commodity spotlight – Gold
It’s been a choppy week for gold with bulls struggling to claw back the steep losses witnessed last Friday. The price action has felt like a strenuous uphill battle with multiple resistances in the form of the 50,100 and 200-day Simple Moving Average limiting upside gains. Prices are currently in a sticky region and may need a massive fundamental boost to push beyond $1792-$1800. While gold may find strength from the risk-off mood and a weaker dollar, Treasury yields are creeping higher which could end up capping any meaningful gains.
Looking at the technical picture, prices are likely to swing between losses and gains until a solid break above $1792 is achieved. Should this level prove to be a tough resistance to crack, a decline back towards $1770 may be on the cards.
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