The risk rally continues to break new ground today as the laissez-faire Fed looks benignly on the rate outlook in the US and so will maintain its commitment to supportive policy for “some time” yet. The economy is still far short of its target even as Fed members acknowledged an improving outlook buoyed by massive fiscal spending and accelerating vaccinations. This is manna to stock market bulls everywhere with indices hitting new highs once again in Europe and the UK, while the S&P500 has just opened and is approaching 4,100.

The tech-heavy Nasdaq is also enjoying another lease of life as US technology groups received relief from the bond market selling that had hit growth stocks.

As long as US interest rates are not going north at a rapid rate of knots and the Vix remains low, then stocks should continue on their merry way.

Dollar Index at key juncture

This environment is not so good for dollar bulls of course and the DXY is on track for its worst week since the end of November. The index is pivoting around its 200-day moving average (92.40) with yesterday’s record US trade deficit representing another barrier to a stronger rebound. If prices close below the March high at 92.50, then a couple of important moving averages will act as resistance to any concerted move higher. We also had worse than expected weekly initial jobless claims numbers, though Easter is forecast to have skewed these numbers for a few weeks.

Gold fights back

Having suffered its worst quarter since the final three months of 2016, the unloved yellow metal has staged a rip-roaring rebound in relative terms. In fact, the retreat in the dollar as well as in US Treasury yields has seen all the metals complex rally. The IMF’s latest global growth forecast upgrade, together with recent strong economic data releases have equally proved highly constructive for base metals.

For gold, prices look to have now formed a very strong base below $1680 and a potential double bottom is in play. Confirmation of this is still needed which means bulls need to push prices ideally above the November low at $1765.

That said, the fact that open interest in gold futures is at their lowest in almost two years and ETF holdings are still being reduced may continue to plague the gold bugs.

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