Limited Headwinds for the Dollar After Advance GDP Misses Expectations

In the aftermath of advance GDP on 30 October and ahead of 1 November’s NFP, the dollar made limited losses against some major currencies while continuing gains against others. Expectations of moderate dovishness by the Federal Reserve (‘the Fed’) are holding for now. This article summarises the latest news affecting the American economy then looks briefly at the charts of XAUUSD and EURUSD.

American GDP in the third quarter seems to have grown slightly less than anticipated, but the situation overall clearly remains positive:

If the long-awaited recession was actually imminent, one would expect to see GDP declining to some degree this year. That this hasn’t happened is fairly optimistic for the currently favoured scenario of ‘no landing’ and growth continuing as the Fed continues to cut rates.

With less than a week to go until the American elections, national polling suggests that Kamala Harris is about 1.4% ahead of Donald Trump. It’s too close to call a favourite based on polling, but as seen in various other presidential elections – notably 2016 – polling can be unreliable and tend to underestimate Republican support. Traders need to prepare for extremely high volatility and monitor the results assiduously if holding positions overnight on 5 November.

Last month’s NFP bucked the trend of weakening in the job market, but it’s not clear yet whether this means a sustained rebound. The consensus for this time is 115,000 total nonfarm and unemployment 4.1%; the former seems overly pessimistic, so there might not be a strong reaction to an upward surprise unless it’s particularly positive.

Gold, Daily

Gold reached a fresh all-time high on 31 October as the outcome of next week’s elections remains highly uncertain and demand for havens continued. The uptrend is very strong but doesn’t currently seem to be as overheated as it had been in the second quarter. The value areas between the main moving averages haven’t generally expanded notably in recent weeks although the slow stochastic displays a clear overbought signal.

The obvious long-term target is $3,000, a round number which coincides fairly closely with the 161.8% monthly Fibonacci extension. It might take some time for the price to reach there: currently gold looks vulnerable in the short term to a better than expected NFP on 1 November, a scenario which seems moderately likely given the low consensus for total nonfarm.

Based on last week’s movements, $2,715 is a possible short-term area of support. The 20 SMA is about to reach there within the next few days. $2,640 around the 50 SMA from Bands is also in view as a support. For now, it seems very unlikely to see a move back to the 100% monthly Fibonacci extension around $2,545, but that’d be possible next week if the NFP is strong and in the unlikely scenario of Donald Trump delivering a particularly solid win.

Euro-dollar, Daily

Apart from slightly disappointing American GDP, euro-dollar has also made gains in recent days on stronger than expected growth in the eurozone generally and in major national economies. Preliminary German inflation for October rose more than expected to 2%.

Relatively high volume of buying and a move out of oversold by the slow stochastic after 24 October’s upward engulfing candlestick would usually suggest an ongoing bounce, but that looks more difficult with the 200 SMA only slightly above the current price. If there’s a break above there, the target would probably be the value area between the 50 and 100 SMAs slightly below $1.10.

A clear break back to $1.07 and the 100% weekly Fibonacci retracement doesn’t seem at all favourable for now. However, a positive surprise from the NFP could push the price back to its recent starting point near $1.076 at least temporarily.

This article was submitted by Michael Stark, an analyst at Exness.Exness

The opinions in this article are personal to the writer. They do not reflect those of Exness or FX Empire.