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The strong rebound of USD, Gold suffered a heavy setback!
Lucia Han
2020-11-02 548

Abstract: The dollar bounced back, while gold suffered a sudden decline. The US stock market is in turmoil as the election draws to a close. As the global pandemic continues to spread, the oil bulls are losing their nerve. The euro is subject to a double-whammy of the COVID-19 pandemic that is wreaking havoc worldwide and the prevailing dovish stand. Is GBP expected to rise as a Brexit deal is on the cards?


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USD unexpectedly rebounded but gold stumbled

Gold suffered a sharp fall last week, unnerving gold bulls. The metal experienced a sharp sell-off at the start of last week as the U.S. stimulus package, with little chance of a deal before the election, helped the U.S. Dollar Index rally. Despite the surge in market panic, gold seems to have been abandoned like any other risk assets in the current turmoil, rather than serving its original safe-haven function. Gold fell from a high of $1911 per ounce to $1860 per ounce and was down 1.22% at $1877.9 at the close. See real-time gold price chart below:


Source from: Mitrade

Some gold producing countries have taken advantage of the recent surge in gold prices to sell their gold aggressively, easing financial strains caused by the outbreak of the COVID-19 and making central banks sellers of gold for the first time since 2010. On the dollar, last week's move could be described as a narrow escape. The U.S. Dollar Index fell below 92.47 on upbeat news about the stimulus package. Last week, however, there was a sharp reversal as delays in the stimulus package and risk aversion from the election pushed the dollar above 94. By the end of last Friday, the U.S. Dollar Index closed at 93.881, up 1.22%. Gold has fallen as much as the U.S. Dollar Index has risen, re-illustrating the tightness between them. In the short term, whether the dollar will continue its strength will heavily hinge on the outcome of the election. If the outcome is disputed, the U.S. Dollar Index is likely to remain strong and accordingly the gold market will be in turmoil.

U.S. stock market suffered a sell-off before the election

The turmoil in the U.S. stock market last week mirrored investors' panic over the outcome of the upcoming election. As Wall Street plunged, the CBOE Volatility Index briefly breached 40 for the first time since June. Moreover, persistent talk in financial markets about the "stimulus package" and a surge in COVID-19 cases in the country have contributed significantly to the heightened market panic. Last week, the White House and the House of Representatives signaled that any deal on the stimulus package before the election was unlikely, leading to a sharp fall in the three major U.S. stock indexes on Wednesday, all down more than 3.4% on the day. 


Last week's US third-quarter GDP and employment figures, on the other hand, brought good news. As reported, real GDP grew at an annualised rate of 33.1% in the third quarter, a record high and 31% above expectations. Separately, some 751,000 Americans filed first-time unemployment benefits last week, the lowest since mid-March and below 1 million for six weeks in a row. As a result, good news on these economic data and Mr Trump's declaration that he would "stimulate the economy on a very large scale" helped push all three indexes higher on Thursday. But the three indexes tumbled after big tech companies missed expectations with third-quarter results. At Friday's close, the S&P 500, Nasdaq and Dow were down 4.15%, 2.78% and 6.01%, respectively, at 3310.11, 11185.59 and 26659.11. See S&P 500 index real-time price chart below:


Source from:Mitrade


This week's breaking news on the U.S. side, which will certainly cause a market shock. See details below:

1. The final outcome of the U.S. election; 

2. ADP employment data and non-farm employment data; 

3. Fed's decision on interest rates; 

4. Manufacturing and non-manufacturing PMI 


Thus, investors must pay close attention to them. Trade Now>>

Risk aversion has risen, and crude oil suffered another setback

Last week's positive Brexit news did not reverse the pound's downward trend. Currently, the British government, like other countries in Europe, has been forced to undertake economic blockades to combat the COVID-19. As a result, Britain may face an even bigger wave of unemployment in the future. The IMF expects the Bank of England to have room to ease monetary policy in the short term, and UK GDP will fall by 10.4% in 2020 and grow by 5.7% in 2021, lower than the previous IMF world economic outlook. In addition to the uncertainty over the UK economy, there is also concern about whether the Brexit negotiations will lead to a deal. 


The UK and the EU began intense daily negotiations last week and aim to hammer out a deal by mid-November. They have made progress on some of their biggest differences, have begun work on the text of an agreement on the level competitive playing field, and are close to finalising a joint document on government aid, according to people familiar with the matter. The news has revived hopes for a Brexit deal and helped reduce the negative impact on sterling as the pandemic worsens and the dollar rebounds. At Friday’s close, GBP/USD trended at 1.2950, down 0.69%. The Bank of England's decision on interest rates is due this week, and it will be interesting to see whether it can do more to stimulate the economy. Trade Now>>




Another wave of COVID-19 and the ECB's dovish attitude caused a huge shock to the euro

"The euro fell against the dollar last week, falling sharply for five days in a row. The euro, which has been losing ground against the dollar since the spread of the COVID-19 triggered blockages and curfews across the Eurozone, appears to be hitting a record low of 1.16122 in late September. The ECB was preparing for the next stimulus policy as the economic recovery in Europe was losing momentum by another wave of the pandemic. Its announcement of monetary policy indicated that it would not change its current stimulus policy, but ECB President Christine Lagarde made it clear that policymakers would agree on a new stimulus package in December. In addition, the European emergency bond purchase program remained at 1.35 trillion euros, and Christine Lagarde also indicated that the next step may not only expand the program, but will consider any tool available to stimulate the economy. 


At present, the EUR/USD currency pair is facing severe downside risks due to the strong rebound of the U.S. dollar, besides another wave of the COVID-19 and the ECB's dovish comments. At Friday's close, EUR/USD declined 1.80% to 1.16459. The euro is likely to face greater risks this week when Eurozone manufacturing PMI and retail sales data are due to be released, potentially re-highlighting the slowdown in Europe's economic recovery.


Can the GBP survive the good news from Brexit?

Last week's positive Brexit news did not reverse the pound's downward trend. Currently, the British government, like other countries in Europe, has been forced to undertake economic blockades to combat the COVID-19. As a result, Britain may face an even bigger wave of unemployment in the future. The IMF expects the Bank of England to have room to ease monetary policy in the short term, and UK GDP will fall by 10.4% in 2020 and grow by 5.7% in 2021, lower than the previous IMF world economic outlook. In addition to the uncertainty over the UK economy, there is also concern about whether the Brexit negotiations will lead to a deal. 


The UK and the EU began intense daily negotiations last week and aim to hammer out a deal by mid-November. They have made progress on some of their biggest differences, have begun work on the text of an agreement on the level competitive playing field, and are close to finalising a joint document on government aid, according to people familiar with the matter. The news has revived hopes for a Brexit deal and helped reduce the negative impact on sterling as the pandemic worsens and the dollar rebounds. At Friday’s close, GBP/USD trended at 1.2950, down 0.69%. The Bank of England's decision on interest rates is due this week, and it will be interesting to see whether it can do more to stimulate the economy.


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