Gold struggles to shine as dollar firms

October 3, 2017 10:29 AM

Gold struggled to hold onto its shine on Tuesday, as the risk-on mood encouraged investors to seek riskier assets, such as equities.

The yellow metal dipped to a seven-week low below $1270 during early trading, and it looks like further punishment is in store, as firming U.S. rate hike expectations buoy the U.S. dollar.  With prices securing a solid monthly close below the $1300 psychological level, and extended losses towards $1267, bears are in the vicinity.

From a technical standpoint, gold is under intense selling pressure on the daily charts, with $1267 acting as minor support.  A breach below this level may instill sellers with enough inspiration to attack $1250.

Dollar Index eyes 94.00 

The greenback stood tall against a basket of major currencies during early trading on Tuesday, as positive U.S. economic data reinforced expectations of a rate hike before year-end. With the Federal Fund futures markets pricing in more than a 75% probability of a rate hike in December, the dollar is likely to remain supported moving forward. 

Much attention will be directed towards the anticipated U.S. Jobs Report due on Friday, which could spark some dollar volatility. With the impact of Hurricanes Irma and Harvey adding some unplanned components into the mix, the data could be distorted. 

King Dollar is making a comeback; this was displayed on Tuesday when the Dollar Index strode towards 93.92. A breakout and daily close above the 94.00 resistance may encourage a further incline towards 94.50.

Currency spotlight – GBP/USD

Sterling extended losses against the dollar on Tuesday, after data showed activity in the construction sector fell for the first time in 13 months in September.

The Purchasing Manager Index (PMI) for construction dropped to 48.1 in September. The Index falling below the 50 level indicates a contraction; with Brexit uncertainty and soft economic data eroding buying sentiment towards sterling, further downside is on the cards. Technical traders will continue to observe how the GBP/USD behaves below 1.3300, sustained weakness under this level could open a path towards 1.3150.

About the Author

Lukman Otunuga is an FXTM research analyst