The dollar extended sharp declines against a basket of six major rivals as the world’s largest economy was hit by big natural disaster after Houston devastated by tropical storm Harvey. The buck went down towards its monthly supports around 91.75—91.85 region.
Combining this with rising North Korea tensions, gold soared over 300pips and created a new high of 1322.75 so far this year.
The Dollar Index (DXY) continued to slip Monday (28 August) on concerns over potential negative impacts of Harvey which hit and devastated Houston, the fourth largest city in Texas, U.S. President Donald Trump, facing the first big U.S. natural disaster since he took office in January, visited Texas when North Korea fired a missile over Japan on Tuesday.
The missile fell into waters off Hokkaido and which possibly elevated geopolitical tensions. Driven by the combination of concerns over economic impacts of the natural disaster and the rising geopolitical tensions, gold soared and broke above 1300 handle. The price climbed to a high of 1322.75 this morning.
Monday, the dollar index turned lower and continued to decline in New York session after it fluctuated around prior lows in Asian session. Both its diverging short term moving averages and long term moving averages showed modestly strong bearish momentum on 1 hour chart, indicating still-powerful downside momentum of the price action. Keep an eye on downside supports around 91.75-91.85.
(DXY monthly chart)
As to non-U.S. currencies, the euro extended up move, targeting 1.20 handle. However, some investment banks predicted the single currency has formed a top. What we should do is following trends other than predicting. We thus should keep an eye on supports at H1-period EMA30. The sterling staged expected pull-backs to retest H4-period EMA60 and confirmed its role as a support. Whether or not the British currency could form bullish breakouts today will be important to observe given it has rallied and tested resistance at EMA169 – a daily trend resistance as well. The Aussie dived in late New York session due to the decline in commodity futures, targeting liquidity at H4-period EMA30 and EMA60.
(GBP/USD H4 chart)
As far as precious metals were concerned, gold rallied and hit a new high for 2017. The yellow metal reached a high of 1322.75 this morning. Facing extraordinary strong short-term upside momentum, some speculative bearish positions were forced to liquidate. Bulls now need to consolidate and hold 1313—1321 area to see a further potential rally going forward.
(Gold H4 chart)
by JasonZou —— Chief Analyst of AvaTrade China
Disclaimer: The views and opinions expressed in this article are those of the authors and for the purpose of reference only, and shall not be relied upon by investors in making any trading decisions.