- Increased geopolitical tensions in the Middle East and US election uncertainty have caused a rise in safe-haven demand, particularly for Gold.
- The US Dollar has weakened due to concerns about a potential Kamala Harris presidency and its implications on the economy.
- Market sentiment is expected to be driven by US election developments and geopolitical issues in the first half of the week.
Most Read: Weekly Market Outlook: US PCE, GDP, and Earnings Expected to Drive Volatility
The week kicked off with heightened market activity due to escalating tensions in the Middle East and a surprising announcement from US President Joe Biden on Sunday evening that he will not seek re-election.
Geopolitical concerns surged as the Israeli military launched retaliatory strikes on the port of Hodeidah in Yemen and other targets, prompting threats of new military action from the Houthis against Israel. This escalation raises the risk of a broader conflict in the Middle East, with comments from Russia and Iran further fueling concerns.
Adding to the uncertainty, President Biden unexpectedly announced that he would complete his current term but not run for re-election. This development introduces a new layer of intrigue and uncertainty, which markets typically find unsettling. Following Biden’s announcement, many Democrats quickly rallied behind Vice President Kamala Harris. The US Dollar weakened slightly as markets began to consider the implications of a potential Harris presidency on the economy.
Safe Haven Bids
Markets opened with a strong demand for safe havens, pushing Gold higher in Asian trade, while the Japanese Yen and Swiss Franc also saw gains. Throughout most of the year, the US Dollar has benefited from safe haven flows, but not this time. The current fear stems partly from the prospect of a Kamala Harris and Democratic victory, which could theoretically weaken the US Dollar in the long term due to potential tax increases and lower borrowing costs. This concern likely explains the diminished safe haven appeal of the US Dollar at the moment.
As you can see from the currency strength chart below, JPY and CHF are leading the way this morning.
Currency Strength Chart
Source:FinancialJuice (click to enlarge)
Looking ahead, there is a slew of important economic data on the horizon. However, for now, I expect that US election developments and geopolitical issues will primarily drive market sentiment in the first half of this week. Unless there are significant escalations or unexpected changes, we may remain in a risk-off mode until Wednesday when key US economic data starts to come in.
Technical Analysis on XAU/USD
Spot Gold (XAU/USD) experienced significant selling pressure on Thursday and Friday but managed to cling to the crucial $2400/oz psychological level. With risk-off sentiment on the rise, further gains could be in store for the precious metal, especially if it continues to hold above the $2400/oz mark.
A weaker US Dollar at the start of the week may also help Gold stage an early recovery. Any signs of escalating tensions or increased uncertainty around the US elections are worth monitoring, as they could further impact Gold prices.
On the weekly timeframe, Gold printed a massive shooting star rejection candle, suggesting potential downside ahead. Moving to the daily chart, Gold prices are eyeing a break of the ascending trendline, which could lead to a retest of the 20-day moving average, currently at 2377.
Overall, the technical and fundamental outlooks are at odds as the week begins. The key question for many this week is which side will dominate and drive price action moving forward.
Support
- 2400 (psychological level)
- 2392
- 2377 (20-day MA)
Resistance
- 2432
- 2450
- 2475
XAU/USD Daily Chart, July 22, 2024
Source: TradingView.com (click to enlarge)
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Zain Vawda
He has spent the last 3 years in an analyst role honing his skills across various financial domains, including technical analysis, economic data interpretation, price action strategies, and analyzing the geopolitical impacts on global markets. Currently, Zain is advancing in obtaining his Capital Markets & Security Analyst (CMSA) designation through the Corporate Finance Institute (CFI), where he has completed modules in fixed income fundamentals, portfolio management fundamentals, equity market fundamentals, introduction to capital markets, and derivative fundamentals.
He is also a regular guest on radio and television programs in South Africa, providing insight into global markets and the economy. Additionally, he has contributed to the development of a financial markets course approved by BankSeta (Banking Sector Education and Training Authority) at NQF level 6 in South Africa.
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