- US dollar softness persists
- Gold turns bullish
- USDCAD tanks on a spike in oil prices
The US dollar remains on the defensive amid improving risk sentiment in the currency market. The dollar index, which measures the greenback strength, is struggling to hold on to gains above the 96.00 handle. Optimism around the economic outlook is the latest factor fuelling reduced demand for safe-havens such as the dollar.
The dollar looks set to continue softening as risk-off impulses reduce. Risk-sensitive currencies such as the Australian and New Zealand dollars have received some reprieve amid improving risk appetite. However, with the dollar still remaining at elevated levels, the majors could come under pressure despite declining demand for safe-havens.
XAUUSD Technical analysis
Taking advantage of the dollar softness is gold which has powered through the $1800 psychological level. The precious metal has been on an impressive run over the past week, shrugging off dollar strength in the aftermath of the hawkish stance by the Federal Reserve.
XAUUSD is currently flirting with a short-term resistance level at the $1813 level as the bullish momentum continues to gather pace. A break through the resistance level should pave the way for the precious metal to make a run for the September swing highs of $1834.
On the flip side, the yellow metal faces strong support at the $1785 level on any pullback. It remains bullish above the support level and is likely to continue edging higher. Similarly, a sell-off below the support level could open the door for bears to steer the price to thelows of $1770 the next substantial support level.
Gold is a better bid heading into year end given the lack of substantial factors needed to trigger dollar strength. A surge above the $1800 level has all but affirmed the metal bullishness, with bulls setting sights on the $1830’s and 1850’s level.
Fundamentals driving XAUUSD
The bullish biasness on XAUUSD is being fueled by a number of factors, key among them being treasury yields retreating after three days of gains. The US 10-year yield has struggled to power through the 1.50% barrier. Sluggishness on treasury yields continues to fuel dollar softness, which favors XAUUSD bulls.
In addition, XAUUSD has also received a boost of optimism about President Joe Biden’s Build Back Better stimulus plan. The stimulus plan is likely to result in more dollars being pumped into the economy, something likely to fuel greenback weakness amid the elevated inflation levels.
Additionally, easing concerns that the Omicron variant will trigger significant repercussions on economic growth also continues to fuel demand for risk in the market. Easing Omicron fears has seen traders shun safe-havens such as the dollar in favor of gold to hedge against high inflation levels.
USDCAD pull back
Meanwhile, USDCAD is recovering after sliding from three-month highs. The pair has slid from highs of 1.2963 to session lows of 1.2830. The deep pullback comes on risk sentiment improving in the market, all but fuelling dollar weakness in favor of the Canadian dollar.
Following the pullback, the pair remains susceptible to dropping to 1.2765, the next substantial support level. A break below the support level should pave the way for a pullback to 1.2646, the next crucial support level.
Similarly, USDCAD could bounce back on bulls steering a run above the 1.2868 resistance level. A rally past the short-term resistance level could open the door for the pair to bounce back to the 1.2900 level.
The pullback on USDCAD is being fuelled by the Canadian dollar strengthening across the board on a spike in oil prices above the $70 a barrel level. Oil prices have turned positive, posting two days of gains. The bounce-back comes on easing concerns that the Omicron variant will affect oil demand.
The US army confirmed the possibility of a single vaccine to tackle COVID-19 and all variants continue to fuel demand for riskier currencies such as CAD. Additionally, risk appetite has improved on the FDA approving a pill for Pfizer.