Daily Brief, January 05 – Everything You Need to Know Today! - Forex News by FX Leaders

Daily Brief, January 05 – Everything You Need to Know Today!

Posted Tuesday, January 5, 2021 by
Arslan Butt • 3 min read
Good morning traders,

Today, during the Asian trading hours, the yellow metal prices managed to extend the heavy run-up of the previous day and still to flirt with the $ 1,945 mark, which is the highest level in 8 weeks. However, the prevalent bullish bias was mainly sponsored by intensified worries over the continuous surge in new COVID-19 cases and the prevalent bearish tone surrounding the US dollar, which tends to underpin the dollar-denominated commodity. The worsening coronavirus (COVID-19) conditions in some major countries keep fueling doubts over economic recovery, which puts additional pressure on the global equity market. Moreover, the losses in the global equity market were further bolstered by a cautious sentiment ahead of the Georgia election. Meanwhile, the Sino-US tussle and downbeat Chinese data, not to forget the absence of any major data/events, also kept the market mood under pressure, supporting the safe-haven metal. Across the pond, the reason for the bearish bias surrounding the US dollar could be attributed to the probability of additional US financial aid packages and speculations that the Fed will keep interest rates lower for an extended period. Thus, the weaker US dollar was seen as another factor that provided additional support to the non-yielding yellow metal, as the weaker USD tends to make it cheaper for holders of other currencies to purchase gold. On the contrary, the optimism over a possible coronavirus vaccine kept challenging the risk-off sentiment in the market, and was seen as one of the key factors that has kept a lid on any additional gains in the prices for the precious metal. The gold prices are currently trading at 1,940.18, and consolidating in the range between 1,934.47 and 1,945.68.

The sentiment surrounding the global markets failed to extend its positive performance of the previous day, turning sour as the coronavirus (COVID-19) fears gained momentum. As per the latest report, Japan witnessed a record number of COVID-19 cases last week, and as a result, Prime Minister Yoshihide Suga has said that he will consider declaring a fresh state of emergency in the Tokyo area. Across the ocean, UK Prime Minister Boris Johnson also issued warnings over the possibility of tougher lockdown restrictions in the UK, which instantly overshadowed the optimism over the rollout of vaccines for the highly contagious disease and contributed to the losses in the equity market. The bearish appearance of the US stocks futures tends to highlight the risk-off sentiment, which favors the dollar-denominated commodity.

The reason for the bearish market trading sentiment could also be associated with the previous day’s release of China’s downbeat Caixin Manufacturing PMI data, which confirmed that activity slowed down in December. The gauge dropped to 53.00 in December, from November’s figure of 54.9 and the expected figure of 54.9. The government PMI also fell to 51.9 in December, from 52.1 in November. Meanwhile, the renewed geopolitical tension between the US and Iran, and the intensified US-China tussle, also played a major role in undermining the market trading sentiment.

Across the pond, market traders are keeping their eyes on the election in Georgia, as it will decide who will hold the US Senate under Biden’s presidency. The Republicans are more likely to keep their power, but the Democrat’s recent surprise victory is keeping traders confused, which in turn is weighing on the risks.

Despite the risk-off market sentiment, the broad-based US dollar failed to gain any positive traction and languished near multi-year lows, amid the probability of an additional US financial aid package and speculations that the Fed will keep interest rates lower for an extended period. Apart from this, the optimism over coronavirus vaccines is urging investors towards riskier currencies and higher-yielding assets, rather than the safe-haven asset, which eventually leads to further losses in the safe-haven US dollar. However, the losses in the greenback have become a key factor that has kept the gold prices higher, as the price of gold is inversely related to the price of the US dollar. By 8:49 PM ET (1:49 AM GMT), the US Dollar Index, which tracks the greenback against a bucket of other currencies, had dropped by 0.04%, to 89.812 .

Given the lack of key data, the yellow-metal bulls will cheer for any further worsening of the coronavirus situation and announcements on activity restrictions. Conversely, the positive signs from Georgia and the Fed policymakers’ signal that we should be prepared for further easing, could cap the gains in the yellow-metal prices. Meanwhile, the updates about the US stimulus package will be key to watch. Futhermore, the risk catalysts, like geopolitics and the virus woes, not to forget the Brexit, will not lose any significance.

Daily Support and Resistance

S1 1,884.55
S2 1,910.04
S3 1,926.52
Pivot Point 1,935.53
R1 1,952.01
R2 1,961.02
R3 1,986.51

 

GOLD continues to face resistance around the 1,886 level, which marks the double top on the hourly timeframe. A bullish breakout at 1,786 could lead the precious metal, GOLD, towards the next target level of 1,794. At the same time, the support continues to hold at around the 1,778 level today. Good luck!
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