Dollar rebounds, precious metals under pressure

Frankfurt (Jan 9)  The US dollar index embraced its largest single day rebound since mid-Dec after ranging at three-month low for days.

Without significant changes in the macroeconomic outlook overnight, we have reason to believe that this is more like a technical rebound as short sellers start to take profit while dollar bulls increases their long positions.

CMC’s client sentiment function shows that among CMC’s global client basis, a majority (95%) of clients who are trading the US dollar Index Mar 18 contract are taking long positions, anticipating the greenback to go up further against the other G10 peers. The sentiment for EUR/USD, however, is mixed with 66% of clients’ positions in EUR longs. US CPI and the ECB minutes will be the key focus in G10 during a light calendar week.

EUR/USD slumped for a second day to the 1.197 area, with an immediate support level found at 1.194 area (78.6% Fibonacci Extension level). Technically, EUR/USD is still in an uptrend in its daily chart with both 10-Day SMA and SuperTrend (10, 1.5) sloped upwards. The momentum indicators DMI and RSI, however, are telling a different story. DMI has signalled bull momentum is depleting while RSI has come off the overbought zone.

Strengthening in the US dollar index is calling for a correction in precious metals and a further questioning of the sustainability of precious metals’ rally since early Dec. Gold and silver prices are facing strong resistance at their current levels, as the bull momentum seemed to run out of steam. Technically, leading momentum indicator DMI has signalled warning signs of a potential retracement, and RSI has been hovering above the overbought zone of 70% over the past few days. To confirm a trend reversal, traders need to watch the 10-Day SMA and SuperTrend (10, 2) to change their directions.

In Singapore, the Straits Times Index soared another 20 points and closed above 3,500 mark for the first time since Apr 2015. Singapore equities are riding strong upward momentum amid favourable global sentiment and upbeat economic developments. Investors are looking forward to the upcoming earnings seasons for positive surprises as the cyclical upswing is boosting all sectors from manufacturing to properties to banking and finance.

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