Gold: $1,300 break remains elusive despite the weak tone in the US dollar
- Gold picked up a bid on Monday, tracking the weakness in the US dollar, but the bull momentum ran out of steam at $1,295.
- The dollar index (DXY) fell to 2.5-month lows below the 100-day MA.
- The yellow metal is still struggling to break past $1,300.
- $1,276 is the level to beat for the bears.
Gold bulls may have run out of steam, having engineered a $100 rally in the last seven weeks.
The yellow metal failed to cross the psychological hurdle of $1,300 on Friday and carved out a bearish-lower high of $1,295 yesterday, despite the drop in the US dollar – gold’s biggest nemesis.
Notably, the dollar index found acceptance below the 100-day moving average (MA) yesterday and fell to 95.64 – a level last seen on Oct. 22.
The greenback is indeed on the defensive, having closed below the 100-day MA for the first time since Sept. 27 amid dovish Fed expectations.
The yellow metal is still struggling to pick up a strong bid. As of writing, it is reporting moderate losses at $1,286 per Oz. Gold’s inability to capitalize on DXY’s break below the 100-day MA likely indicates the bulls are facing exhaustion.
Therefore, a notable pullback could be in the offing. Further, a short-term bull-to-bear trend change would be confirmed if the correction ends up clearing the immediate support at $$1,276 – low of Friday’s bearish outside reversal candle.
Fed pause expectations keep lid on dollar
The dollar struggled for traction against its peers on Tuesday, with investors increasingly convinced the Federal Reserve will not raise interest rates this year amid risks of a sharper slowdown in global growth.
The greenback was marginally firmer against the yen, after falling 0.2 percent earlier in the session as traders wagered that the monetary tightening cycle in the world’s largest economy has been halted for the year.
On Friday, Fed Chairman Jerome Powell told the American Economic Association the Fed is not on a preset path of rate hikes and it will be sensitive to the downside risks markets are pricing in.
Powell’s colleague Raphael Bostic, the Atlanta Fed President, added to the central bank’s dovish tone on Monday. Bostic, who is not a voting member of the Federal Open Market Committee this year, said the Fed may only need to raise rates once in 2019.
“The Fed is listening to the market and has acknowledged flashing market signs,” said Sim Moh Siong, currency strategist at Bank of Singapore.
“U.S. inflation has been well behaved so far and so the Fed does have room to pause on its rate hike cycle,” added Sim.
The dollar index was marginally higher, fetching 95.80 at 0244 GMT. Earlier in the session, it had hit an intra-day low of 95.68.
The index has lost around 2 percent since mid-December, and has followed a decline in U.S. bond yields as market participants have grown increasingly confident that the Fed will not hike rates in 2019.
The dollar had gained 4.3 percent in 2018 as the Fed hiked rates four times on the back of a strong domestic economy, falling unemployment and rising wage pressures.
But market expectations for further Fed tightening this year have shifted markedly in the last few months, with some traders now expecting even a rate cut this year.
Financial markets have been rattled by heightened worries about slowing global growth, especially in the United States and China, though data on Friday showed strong U.S. job growth.
Expectations of no further rate hikes this year are likely to keep the greenback under pressure.
Stock Market News
Asian Markets Mixed; Samsung Flags First Profit Drop in Two Years
Asian markets were mixed in morning trade on Tuesday, as investors awaited the outcome of fresh talks on trade. South Korea’s Samsung Electronics (KS:005930) received some focus after the company said it estimated a 29% drop in quarterly operating profit.
Samsung estimated profit at 10.8 trillion won ($9.67 billion) for October-December last year, down 29% from the same period a year earlier. Samsung said the drop was due to weak memory chip demand. It was the company’s first profit decline in two years, according to Reuters.
“We expect earnings to remain subdued in the first quarter of 2019 due to difficult conditions for the memory business,” the company said. The company would release detailed earnings later in January.
South Korea’s KOSPI was little changed at 2,037.21 at 9:50 PM ET (02:50 GMT).
Meanwhile, China’s Shanghai Composite was down 0.1%, while the Shenzhen Component edged up 0.2%.
Trade talks between the U.S. and China remained in focus after U.S. Commerce Secretary Wilbur Ross predicted on Monday that Beijing and Washington could reach a trade deal that “we can live with”.
“There’s a very good chance that we’ll get a reasonable settlement that China can live with, that we can live with, and that addresses all the key issues,” Ross told CNBC in an interview on Monday.
Major Wall Street players plan exchange to challenge NYSE, Nasdaq
Morgan Stanley, Fidelity Investments, Citadel Securities LLC and a host of other financial companies plan to launch a low-cost bourse that will compete with the New York Stock Exchange and Nasdaq.
Brokers and traders have complained for years about what they say are unjustifiably high fees charged by the big U.S. stock exchanges for data on stock trades. The news of the new exchange on Monday pushed down the share prices of the parent companies of the NYSE and Nasdaq.
“The announcement is the latest salvo in the on-going fee battle between exchanges and other market participants, and one which should be taken seriously at least from the perspective of the potential earnings pressure on existing exchanges,” said Nathan Flanders of Fitch Ratings.
In a joint statement on Monday, the companies creating the new exchange said it would look to increase competition, improve operational transparency, reduce fixed costs and simplify equity trading in the United States. Data fees are one of the biggest costs for brokers.
The venture will be called Members Exchange, or MEMX, and will be funded and controlled by nine institutions: Bank of America Merrill Lynch, Charles Schwab Corp, E*TRADE Financial Corp, TD Ameritrade Holdings Corp, UBS, Virtu Financial, Morgan Stanley, Fidelity and Citadel.
This is not the first time that industry giants have taken on the established exchanges. A decade ago, a group including Citi, Credit Suisse, Deutsche Bank, JPMorgan, Lehman Brothers, Morgan Stanley and Merrill Lynch backed a low-cost exchange called BATS. Around the same time, other industry heavyweights launched an exchange called Direct Edge with a similar goal of slashing trading costs. The two exchanges quickly gained market share, later merged and are now owned by Cboe Global Markets.
Banks tried a similar move in Europe by setting up Turquoise to trade cross-border shares as a stick to persuade incumbent exchanges to cut data fees. Turquoise partly succeeded in its aim, but ended up being bought by the London Stock Exchange.
Apple and Tesla shares on the blockchain could be the next big thing in crypto
- Security tokens — digital versions of financial securities like stocks and bonds — are becoming a new buzzword in crypto.
- Analysts and executives in the industry see security tokens as a development that could reinvigorate the cryptocurrency space.
- A key difference setting security tokens apart from other cryptocurrencies is that they are asset-backed and fall within regulatory parameters, experts say.
Cryptocurrencies had a wild 2018, tumbling well below some of the record highs seen toward the end of 2017.
Bitcoin, once worth almost $20,000, plunged last year, closing out 2018 at a price below $4,000. Other major virtual currencies, including XRP and ether, also fell steeply.
Analysts and executives in the industry are increasingly pointing to a fairly new development that could reinvigorate the space: putting securities like stocks and bonds on the blockchain.
So-called security tokens are becoming a new buzzword in crypto. The term is part of a phenomenon in the industry known as “tokenization” — turning real-world assets into digital tokens.
In the case of security tokens, tradable assets like equity and fixed income are transformed into digital assets that use blockchain technology, the virtual ledger of activity that underpins cryptocurrencies like bitcoin.
Security tokens had been talked about for some time, but now one firm is looking to put them to the test.
On Monday, DX.Exchange, an Estonia-based crypto firm, launched a trading platform that lets investors buy shares of popular Nasdaq-listed companies, including Apple, Tesla, Facebook and Netflix, indirectly through security tokens.
Each token is backed by one share of the company traders want to invest in and entitles them to the same cash dividends.
“The crypto community has been talking about security tokens for well over a year now without much progress, so we think the impact will be huge,” Amedeo Moscato, DX’s chief operating officer, told CNBC by email over the weekend.
“By tokenizing stocks of some of the biggest publicly-traded companies like Google, Amazon, Facebook and more, we are opening an untapped market of millions of old and new traders around the globe cutting out the middleman.”
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