The Dollar Index (DXY) is now trading below the psychological 96 mark and erased all of its year-to-date gains, with G10 and Asian currencies taking advantage of the upside made available by the weaker Greenback. The DXY is clearly on the hunt for a stronger floor, having already broken past multiple support levels and embarked on a remarkable downward spiral since the Fed meeting last week. Markets are clearly buying in to the “Fed rate cut” theme, with investors no longer asking “if” US interest rates will be lowered, instead now trying to figure out the “when” and “how much”.
Tuesday’s speeches by Fed chair Jerome Powell as well as James Bullard, the noted dove on the FOMC, could serve as catalysts for more Dollar downside over the near-term. Should either Fed official lend more credence to the FOMC’s easing bias, that could help DXY fall to levels not seen since January, potentially closing in on the 95 psychological mark.
With Gold well above $1400, how much more upside is there?
The Dollar’s decline has certainly been a boon for Gold prices, with Bullion now trading at $1424 at the time of writing. Having already soared to its highest since 2013, investors will certainly be wondering how much upside is left for Gold.
Gold’s lure has only increased amid intensified fears over the global growth outlook that has been severely dampened by US-China trade tensions that have lasted for nearly a year. The now enlarged scope of the US-China conflict, expanding beyond trade to include the tech sector, along with the displays of brinksmanship that have unfolded in recent weeks, creates a narrative that should keep Gold’s allure intact.
Risk sentiment simmers ahead of Trump-Xi meeting
Investors appear to be chipping away at Asian equities, with most regional major indices posting slight declines on Tuesday. Markets can do little but wait for the meeting between US President Donald Trump and Chinese President Xi Jinping on the sidelines of the G20 summit in Japan later this week.
The Trump-Xi meeting holds the potential to rock markets, depending on how much the outcome deviates from market expectations. At best, markets can hope for a marked resumption of US-China trade talks. At worst, both leaders walk away to underscore the tremendous gulf that still remains in the US-China standoff. Any show of willingness to compromise by either Trump or Xi would be welcomed by risk assets, potentially pushing equities higher while taking the shine off safe haven assets such as Gold, the Japanese Yen, and US Treasuries.