Gold drops as US Treasury benchmark yields rise at the start of the new year
US Treasury yields are rising as the markets price in some Federal Reserve policy changes in 2022. Gold, unfortunately, doesn't respond well to the near-term benchmark rate and yield increase and today came back under the 20 and 50-period averages but found support at the 200-period EMA. Gold will continue to fall if pandemic concerns lead sentiment amid a record number of daily COVID-19 cases being reported across Europe and the United States. There wasn't much scheduled economic data from the US session today, but that which did release had a positive impact on the US dollar and saw the Dow Jones Industrial Average attempt to hold the 36,250 support level.
IHS Markit's December PMI data indicate a further subdued improvement in production in the US manufacturing sector. Except for October and November, output growth slowed to its slowest pace since October 2020. Meanwhile, new orders fell to their lowest level in a year, and vendor performance further deteriorated amid severe material shortages. Due to longer lead times for inputs, the backlog of work also increased sharply, albeit at the slowest rate in over a year.
During November 2021, construction spending was estimated at $1,625.9 billion, a 0.4% increase when compared to the revised October estimate of $1,618.8 billion, according to the US Census Bureau. The November figure is 9.3% higher than the November 2020 estimate of $1,487.2 billion.
The US dollar popped out of the descending channel after a strong US open today. $96.40 is a significant intraday swing high since the decline of the greenback since mid-December.
On an H4 chart, the Dow Jones Industrial Average is showing momentum to the upside but is struggling to get back above the 20-period EMA and retest the all-time highs.
The forex heatmap is showing how the markets have turned more risk-averse compared to this morning’s heatmap which was mixed. The flows have been into the USD and Chinese yuan and out of the commodity pairs.
This morning I detailed how the economic backdrop in Europe amid the rising Covid-19 cases was signaling that the EURGBP could continue to drop lower. The London and bulk of European traders would have been on bank holiday today so when the US session began the US traders took the same view as me and after the EURGBP touched some old support and resistance levels just below 0.8420 they sold it off sharply. If the day were to close below the 0.8365 level and previous swing low tomorrow could also be a larger down day as the markets are fully open.
The ActivTrader sentiment indicator is showing that 66% of traders are still trying to go long, so a squeeze lower is still on the cards.