After yesterday's minor correction, the dollar index (DXY) is falling again today. As of writing, DXY futures were trading near 102.15, 60 pips below last week's close. The price of DXY futures is developing a downward trend towards 100.68, corresponding to the lows of the previous wave of decline from 114.75 (wave high and high since May 2002) and lows since May 2022.
The improvement in the sentiment of the stock market participants is helping to strengthen the quotes of risky and commodity currencies while also putting pressure on the U.S. dollar. Positive news regarding the U.S. banking sector played its role here: representatives of the American company First Citizens BancShares, Inc. said they are ready to buy back part of the loan portfolio of Silicon Valley Bank.
The next meeting of the Fed will take place in early May, and the maximum that most economists expect is a 25 basis point interest rate hike, and a large part of them believe that the central bank will take a break in tightening monetary policy.
Meanwhile, the mood of American consumers remains stable and positive, despite the tightening of the Fed's monetary policy, inflation and the banking crisis: the Consumer Confidence Index (CCI), published the day before, which reflects consumer confidence in economic development, rose in March to 104.2 from 103.4 in February, also outperforming the forecast of 101.0.
As for investors and major players in the financial market, they are still inclined to distrust the emerging trend of improving general sentiment, preferring to wait out the period of uncertainty in defensive assets.
This, in particular, is evidenced by the growth in the volume and number of transactions in gold: according to the Chicago Mercantile Exchange (CME Group), on March 13, the volume of positions in gold reached its historical peak of 731.397 thousand contracts, having increased from 155.434 thousand contracts on March 7. At the beginning of last week, when the alarming events and reports around the crisis in the banking sector reached their peak, the price of gold futures jumped to the level of $2031.70; the XAU/USD pair reached its 12-month high of 2009.75.
Despite the decline from this local high in response to the actions of the monetary authorities, who have taken appropriate actions to stabilize the markets and maintain liquidity, increased activity of investors in gold remains, trading volumes are still kept at high levels. Yesterday, according to CME Group, the futures position in gold amounted to 241.374 thousand contracts, and the option position at 45.371 thousand contracts.
However, the strong bullish momentum in XAU/USD continues, keeping it in the middle of the newly formed range between 2009.00 and 1935.00.
In addition, investors are still afraid of the transition of the U.S. economy into recession, while inflation remains at high levels, despite the tightening of monetary conditions in the U.S. and countries with major economies.
As we noted in our recent gold review, despite the correction of the pair, we should expect a resumption of its growth.
Today, investors will wait for the final estimate of U.S. GDP for Q4 2022 and the weekly report on unemployment claims from the U.S. Department of Labor. Tomorrow, they will also see the U.S. personal income and spending data and the final assessment of the level of consumer confidence by the University of Michigan for March.
Also, it is worth paying attention to the speeches today (at 16:45, 17:00, and 19:45 GMT) by representatives of the Fed leadership and U.S. Treasury Secretary Janet Yellen. Their comments may increase volatility in the markets.